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on Macroeconomics |
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Issue of 2019‒02‒25
116 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Hasumi, Ryo; Iiboshi, Hirokuni |
| Abstract: | Abstract This paper estimates heterogeneous agent New Keynesian (HANK) model for US and Japan through three aggregate observations: real GDP, inflation and interest rate, by adopting combination of easy-to-use computational method for solving the model, developed by Ahn, Kaplan, Moll, Winberry and Wolf (2019), and sequential Monte Carlo (SMC) method with Kalman filter applied for Bayesian estimation with parallel computing. The combination make us enjoy the estimation of HANK just using a Laptop PC, e.g., Mac Book Pro, with MATLAB, neither many-core server computer nor FORTRUN language. We show estimation results of one Asset HANK model, i.e., impulse response, fluctuations of distributions of heterogeneous agent as well as historical decomposition for both countries. Even though using the same model, different data draws different pictures. |
| Keywords: | Heterogeneous Agent model, Linearization, Model Reduction, Bayesian estimation, Sequential Monte Carlo, Kalman Filter |
| JEL: | C32 E12 E21 E32 E43 E52 E62 |
| Date: | 2019–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92292&r=all |
| By: | Ioana A. Duca; Geoff Kenny; Andreas Reuter |
| Abstract: | This paper exploits a very large multi-country survey of consumers to investigate empirically the relationship between inflation expectations and consumer spending. We document that for the Euro Area and almost all of its constituent countries this relationship is generally positive: a higher expected change in inflation is associated with an increase in the probability that a given consumer will make major purchases. Moreover, in line with the predictions of macroeconomic theory, the impact is stronger when the lower bound on nominal interest rates is binding. Also, using the estimated spending probabilities from our micro-level analysis, we indirectly estimate the impact of a gradual increase in inflation expectations on aggregate private consumption. We find the effects to be economically relevant, especially when the lower bound is binding. |
| JEL: | D12 D84 E21 E31 E52 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:092&r=all |
| By: | Josef Schroth |
| Abstract: | This paper studies optimal bank capital requirements in a model of endogenous bank funding conditions. I find that requirements should be higher during good times such that a macroprudential “buffer” is provided. However, whether banks can use buffers to maintain lending during a financial crisis depends on the capital requirement during the subsequent recovery. The reason is that a high requirement during the recovery lowers bank shareholder value during the crisis and thus creates funding-market pressure to use buffers for deleveraging rather than for maintaining lending. Therefore, buffers are useful if banks are not required to rebuild them quickly. |
| Keywords: | Credit and credit aggregates; Financial stability; Financial system regulation and policies; Business fluctuations and cycles; Credit risk management; Lender of last resort |
| JEL: | E13 E32 E44 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:19-8&r=all |
| By: | Goodhart, C. A. E.; Mills, Terence C.; Capie, Forrest |
| Abstract: | This paper investigates whether the inversion of the yield spread, with short-term rates higher than the long-term rate, has been and remains an effective predictor of recessions in the U.K. using monthly data from 1822 to 2016. Indicators of recession are constructed in a variety of ways depending on the availability and properties of the data in the pre-World War 1, inter-war, and post-World War 2 periods. It is found that, using peak-to-trough recession indicators and a probit regression model, there is reasonably strong evidence to support the inverted yield spread being a predictor of recessions for lead times up to eighteen months in all three periods |
| Keywords: | prediction; probit models; recession; yield spread |
| JEL: | E30 E32 E43 E44 N10 |
| Date: | 2019–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:100092&r=all |
| By: | Capie, Forrest; Goodhart, Charles A; Mills, Terence C |
| Abstract: | This paper investigates whether the inversion of the yield spread, with short-term rates higher than the long-term rate, has been and remains an effective predictor of recessions in the U.K. using monthly data from 1822 to 2016. Indicators of recession are constructed in a variety of ways depending on the availability and properties of the data in the pre-World War 1, inter-war, and post-World War 2 periods. It is found that, using peak-to-trough recession indicators and a probit regression model, there is reasonably strong evidence to support the inverted yield spread being a predictor of recessions for lead times up to eighteen months in all three periods. |
| Keywords: | prediction; probit models; Recession; yield spread |
| JEL: | E30 E32 E43 E44 N10 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13519&r=all |
| By: | Sarah Mouabbi; Jean-Guillaume Sahuc |
| Abstract: | We quantify the macroeconomic effects of the European Central Bank’s unconventional monetary policies using a DSGE model which includes a set of shadow interest rates. Extracted from the yield curve, these shadow rates provide unconstrained measures of the overall stance of monetary policy. Counterfactual analyses show that, without unconventional measures, the euro area would have suffered (i) a substantial loss of output since the Great Recession and (ii) a period of deflation from mid-2015 to early 2017. Specifically, year-on-year inflation and GDP growth would have been on average about 0.61% and 1.09% below their actual levels over the period 2014Q1-2017Q2, respectively. |
| Keywords: | Unconventional monetary policy, shadow policy rate, DSGE model, euro area |
| JEL: | E32 E44 E52 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:708&r=all |
| By: | Marcus Hagedorn; Iourii Manovskii; Kurt Mitman |
| Abstract: | We measure the size of the fiscal multiplier using a heterogeneous-agent model with incomplete markets, capital and rigid prices and wages. The environment encompasses the essential elements necessary for a quantitative analysis of fiscal policy. First, output is partially demand-determined due to pricing frictions in product and labor markets, so that a fiscal stimulus increases aggregate demand. Second, incomplete markets deliver a realistic distribution of dynamic consumption and investment responses to stimulus policies across the population. These elements give rise to the standard textbook Keynesian-cross logic which, and unlike conventional wisdom would suggest, is significantly reinforced in our dynamic forward looking model. We find that market incompleteness is key to determining the size of the fiscal multiplier, which is uniquely determined in our model for any combination of fiscal and monetary policies of interest. The multiplier is 1.34 if deficit-financed and 0.61 if contemporaneously tax-financed for a pegged nominal interest rate, with similar values in a liquidity trap. If monetary policy follows a Taylor rule, the numbers drop to 0.66 and 0.54, respectively. We elucidate the importance of market incompleteness for our results and contrast them to models featuring complete markets or hand-to-mouth consumers. |
| JEL: | D31 D52 E21 E62 E63 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25571&r=all |
| By: | Snezana Eminidou; Marios Zachariadis |
| Abstract: | The purpose of this paper is to investigate the impact of monetary policy shocks on firms’ selling price and production expectations. We estimate a panel structural vector autoregressive (SVAR) model for 10 euro-area economies using monthly survey data for the period from 1999:1 to 2018:6. To identify the monetary policy shocks, we use narrative and high frequency instruments taking into account the central bank’s announcements regarding its policy decisions. The impulse responses from a panel SVAR analysis indicate that firms typically revise their expectations in a manner consistent with imperfect information theoretical settings, e.g., increasing their production and selling price expectations after an unanticipated interest rate hike. Interestingly, we observe an overshooting pattern where following the initial surprise that leads imperfectly informed firms to raise (reduce) their production and selling expectations after an unanticipated interest rate hike (M1 expansion), firms gradually come to expect contractionary (expansionary) monetary policy shocks to eventually decrease (increase) production and then inflation, thus revise their expectations accordingly by decreasing (increasing) first their production expectations and then their selling price expectations in accordance with this learning experience over time. |
| Keywords: | Rational inattention; imperfect information; survey data; SVAR; narrative shocks; interest rate shock; divisia index |
| JEL: | E31 E52 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:ucy:cypeua:02-2019&r=all |
| By: | Ben S. Bernanke; Michael T. Kiley; John M. Roberts |
| Abstract: | In low-rate environments, policy strategies that involve holding rates “lower for longer” (L4L) may mitigate the effects of the effective lower bound (ELB). However, these strategies work in part by managing the public’s expectations, which is not always realistic. Using the Fed’s large-scale macroeconometric model, we study the effectiveness of L4L policies when financial market participants are forward-looking but other agents are not. We find that the resulting limited ability to manage expectations reduces but does not eliminate the advantages of L4L policies. The best policies provide adequate stimulus at the ELB while avoiding sizable overshoots of inflation and output. |
| Keywords: | Intererst rates ; Model comparison ; Monetary policy |
| JEL: | E58 E61 E52 E13 |
| Date: | 2019–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2019-09&r=all |
| By: | Paul Hubert (Observatoire français des conjonctures économiques); Fabien Labondance (Observatoire français des conjonctures économiques) |
| Abstract: | This paper investigates the instantaneous and dynamic effects of ECB forward guidance announcements on the term structure of interest rates. We estimate the static and dynamic impacts of forward guidance on overnight indexed swaps (OIS) rates using a high-frequency methodology and an ARCH model, complemented with local projections. We find that ECB forward guidance announcements have lowered the term structure of private short-term interest rates at most maturities, even after controlling for the macroeconomic information published by the ECB. The effect is stronger on longer maturities and persistent |
| Keywords: | European central bank; Guidance; Interest rates |
| JEL: | E43 E52 E58 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/61ma1iq1299m89uud61kkjcjot&r=all |
| By: | Lodge, David; Soudan, Michel |
| Abstract: | This paper presents empirical evidence of the role of financial conditions in China’s business cycle. We estimate a Bayesian-VAR for the Chinese economy, incorporating a financial conditions index for China that captures movements across a range of financial variables, including interest rates and interbank spreads, bond returns, and credit and equity flows. We impose sign restrictions on the impulse response functions to identify shocks to financial conditions and shocks to monetary policy. The model suggests that monetary policy, credit and financial conditions have played an important role in shaping China’s business cycle. Using conditional scenarios, we examine the role of credit in shaping economic outcomes in China over the past decade. Those scenarios underscore the important role of credit growth in supporting activity during the past decade, particularly the surge in credit following the global financial crisis in 2008. The financial tightening since the end of 2016 has contributed to a modest slowing of credit growth and activity. JEL Classification: E32, E44, E51, E17 |
| Keywords: | Bayesian VAR, credit conditions, financial conditions index, monetary policy |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192244&r=all |
| By: | Martinez-Miera, David; Repullo, Rafael |
| Abstract: | This paper reexamines from a theoretical perspective the role of monetary and macroprudential policies in addressing the build-up of risks in the financial system. We construct a stylized general equilibrium model in which the key friction comes from a moral hazard problem in firms' financing that banks' equity capital serves to ameliorate. Tight monetary policy is introduced by open market sales of government debt, and tight macroprudential policy by an increase in capital requirements. We show that both policies are useful, but macroprudential policy is more effective in terms of financial stability and leads to higher social welfare. |
| Keywords: | Bank monitoring; Capital requirements; Financial Stability; intermediation margin; macroprudential policy; monetary policy |
| JEL: | E44 E52 G21 G28 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13530&r=all |
| By: | Jelena Zivanovic |
| Abstract: | Based on empirical evidence, I propose a dynamic stochastic general equilibrium model with two financial sectors to analyze the role of corporate debt composition (bank versus bond financing) in the transmission of economic shocks. It is shown that in the presence of monetary and financial shocks, cyclical changes in corporate debt composition significantly attenuate the effects on investment and output. An additional result of the theoretical model is that a bank-dependent economy is more affected by financial shocks, which is in line with empirical results by Gambetti and Musso (2016), who report stronger real effects of loan supply shocks in Europe (with an excessive reliance on bank debt) than in the US. |
| Keywords: | Business fluctuations and cycles; Financial Institutions; Financial markets; Recent economic and financial developments |
| JEL: | E32 E44 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:19-5&r=all |
| By: | Daniel E. Sichel |
| Abstract: | This paper provides a non-technical review of the literature and issues related to the measurement of aggregate productivity. I begin with a discussion of productivity measures, their performance in recent decades, and key measurement puzzles that emerge from the data. The remainder of the review focuses on two important questions. First, how do we make more accurate the measures of prices used to deflate nominal output so as to win (or at least not lose) the race for economic measurement to keep up with a changing economy? This section frames the issues and points to the most important and promising areas for further research. Second, what does or should GDP measure? I defend GDP as a valuable measure of production and offer suggestions for improving it. At the same time, I emphasize the importance of measuring economic welfare (well being) and highlight the value of supplementing GDP with a satellite account that measures economic welfare. |
| JEL: | E01 E22 E24 E31 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25558&r=all |
| By: | S. Devrim Yilmaz (Agence Francaise de Developpement); Engelbert Stockhammer (King's College London) |
| Abstract: | While there exists a substantial literature on different business cycle mechanisms, there is little literature on economies with more than one business cycle mechanism operating and the relation of stability of these subsystems with the stability of the aggregate system. We construct a model where a multiplier-accelerator subsystem in output-investment space (a real cycle) and a Minskyian subsystem in investment- debt space (a financial cycle) can generate stable/unstable cycles in 2D in isolation. We then derive a theorem showing that if two independent cycle mechanisms that generate stable closed orbits in 2D share a self-destabilizing common variable and the true representation of the system is a fully-coupled 3D system where a weighted average of the common variable is in effect, then the 3D system will generate locally stable closed orbits in 3D if and only if the subsystems have the same frequencies and/or the self-destabilizing effects of the common variable evaluated at the fixed point are equal in both subsystems. Our results indicate that in the presence of multiple cycle mechanisms which share common variables in an economy, the stability of the aggregate economy crucially depends on the frequencies of these sub-cycle mechanisms. |
| Keywords: | Business cycles, Minsky models, Multiplier-accelerator |
| JEL: | C32 E32 E44 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:upn:wpaper:2019-02&r=all |
| By: | Schmeling, Maik; Wagner, Christian |
| Abstract: | This paper shows that changes in the tone of central bank communication have a significant effect on asset prices. Tone captures how the central bank frames economic fundamentals and its monetary policy. When tone becomes more positive, stock prices increase, and more so for stocks with high systematic risk, whereas credit spreads and volatility risk premia decrease. These tone effects are robust to controlling for fundamentals, policy actions, and other features of central bank communication, which suggests that tone is a generic instrument of monetary policy that can affect risk premia embedded in asset prices. |
| Keywords: | central bank communication; credit spreads; monetary policy; risk premia; Stock returns; textual analysis; volatility risk |
| JEL: | E43 E44 E58 G10 G12 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13490&r=all |
| By: | Stefan Hohberger; Romanos Priftis; Lukas Vogel |
| Abstract: | This paper compares the distributional effects of conventional monetary policy and quantitative easing (QE) within an estimated open-economy DSGE model of the euro area. The model includes two groups of households: (i) wealthier households, who own financial assets and can smooth consumption over time, and (ii) poorer households, who only receive labor and transfer income and live “hand to mouth.” We compare the impact of policy shocks on constructed measures of income and wealth inequality (net disposable income, net asset position, and relative per-capita income). Except for the short term, expansionary conventional policy and QE shocks tend to mitigate income and wealth inequality between the two population groups. |
| Keywords: | Economic models; Interest rates; Monetary Policy; Transmission of monetary policy |
| JEL: | E44 E52 E53 F41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:19-6&r=all |
| By: | Galí, Jordi; Gambetti, Luca |
| Abstract: | Unconditional reduced form estimates of a conventional wage Phillips curve for the U.S. economy point to a decline in its slope coefficient in recent years, as well as a shrinking role of lagged price inflation in the determination of wage inflation. We provide estimates of a conditional wage Phillips curve, based on a structural decomposition of wage, price and unemployment data generated by a VAR with time varying coefficients, identified by a combination of long-run and sign restrictions. Our estimates show that the key qualitative findings from the unconditional reduced form regressions also emerge in the conditional evidence, suggesting that they are not entirely driven by endogeneity problems or possible changes over time in the importance of of wage markup shocks. The conditional evidence, however, suggests that actual changes in the slope of the wage Phillips curve may not have been as large as implied by the unconditional estimates. |
| JEL: | E24 E31 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13452&r=all |
| By: | De Fiore, Fiorella; Hoerova, Marie; Uhlig, Harald |
| Abstract: | Interbank money markets have been subject to substantial impairments in the recent decade, such as a decline in unsecured lending and substantial increases in haircuts on posted collateral. This paper seeks to understand the implications of these developments for the broader economy and monetary policy. To that end, we develop a novel general equilibrium model featuring heterogeneous banks, interbank markets for both secured and unsecured credit, and a central bank. The model features a number of occasionally binding constraints. The interactions between these constraints - in particular leverage and liquidity constraints - are key in determining macroeconomic outcomes. We find that both secured and unsecured money market frictions force banks to either divert resources into unproductive but liquid assets or to de-lever, which leads to less lending and output. If the liquidity constraint is very tight, the leverage constraint may turn slack. In this case, there are large declines in lending and output. We show how central bank policies which increase the size of the central bank balance sheet can attenuate this decline. JEL Classification: G10, G20, E44, E52, E58 |
| Keywords: | collateral, liquidity, monetary policy, money markets |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192239&r=all |
| By: | Lubik, Thomas A.; Matthes, Christian; Verona, Fabio |
| Abstract: | We study the behavior of key macroeconomic variables in the time and frequency domain. For this purpose, we decompose U.S. time series into various frequency components. This allows us to identify a set of stylized facts: GDP growth is largely a high-frequency phenomenon whereby infl ation and nominal interest rates are characterized largely by low-frequency components. In contrast, unemployment is a medium-term phenomenon. We use these decompositions jointly in a structural VAR where we identify monetary policy shocks using a sign restriction approach. We fi nd that monetary policy shocks affect these key variables in a broadly similar manner across all frequency bands. Finally, we assess the ability of standard DSGE models to replicate these fi ndings. While the models generally capture low-frequency movements via stochastic trends and business cycle fl uctuations through various frictions they fail at capturing the medium-term cycle. |
| JEL: | C32 C51 E32 |
| Date: | 2019–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2019_005&r=all |
| By: | Antoine Monserand (Centre d'Economie de l'Université de Paris Nord (CEPN)) |
| Abstract: | Situated at the interface between post-Keynesian and ecological economics, this article investigates the theoretical possibilities for a degrowth transition to take place while preserving macroeconomic stability. More precisely, the objective is to find whether in a neo-Kaleckian model of growth and distribution an equilibrium with a zero or even negative rate of accumulation can coexist with the Keynesian stability condition being verified. Our results are threefold. First, we confirm that adding the rate of depreciation to the canonical model allows for such an equilibrium to exist, but argue in favor of considering animal spirits rather than the depreciation factor as a potential policy variable for the management of the degrowth transition. Second, other elements such as overhead labour, a tax on capital, an autonomous component in consumption expenditures and a budget deficit can all give this result and provide more 'space' for the equilibrium with a negative rate of accumulation. Finally, we use the mechanism of the Sraffian supermultiplier to illustrate that combined political action and adoption of a more ecological mode of living can be the drivers of a stable degrowth transition. After the transition is completed, the stabilisation of aggregate consumption maintains the economy in a stationary state, at an ecologically sustainable level. |
| Keywords: | Neo-Kaleckian, Degrowth, Transition, Stability, Autonomous consumption, Supermultiplier |
| JEL: | E12 E21 E23 O44 Q01 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:upn:wpaper:2019-01&r=all |
| By: | Faia, Ester; Karau, Soeren |
| Abstract: | The risk-taking channel of monetary policy acquires relevance only if it affects systemic risk. We find robust evidence of a systemic risk-taking channel using cross-country and time-series evidence in panel and proxy VARs for 29 G-SIBs from seven countries. We detect a significant role for pecuniary externalities by exploiting the differential impact of monetary policy shocks on book and market leverage. We rationalize these findings through a model in which a fall in interest rates induces banks to increase leverage and reduce monitoring. In an interacted VAR, we find that macro-prudential policy has a significant role in taming the un-intended consequences of monetary policy on systemic risk. |
| Keywords: | DeltaCoVaR; leverage; LRMES; macroprudential policy; monitoring intensity; panel VAR; policy complementarities; proxy VAR; Risk-taking channel of monetary policy |
| JEL: | E44 E52 G18 G21 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13456&r=all |
| By: | Ray C. Fair (Cowles Foundation, Yale University) |
| Abstract: | This comment points out mismeasurement of three of the variables in the DSGE model in Del Negro, Giannoni, and Schorfheide (2015). These errors began with the model in Smets and Wouters (2007), and they also exist in other models that use the Smets-Wouters model as a benchmark. The mismeasurement appears serious enough to call into question the reliability of empirical results using these variables. |
| Keywords: | DSGE models, Macro data |
| JEL: | E12 E32 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2166&r=all |
| By: | Barnichon, Régis; Mesters, Geert |
| Abstract: | We propose a model-free approach for determining the inflation-unemployment trade-off faced by a central bank, i.e., the ability of a central bank to transform unemployment into inflation (and vice versa) via its interest rate policy. We introduce the Phillips multiplier as a statistic to non-parametrically characterize the trade-off and its dynamic nature. We compute the Phillips multiplier for the US, UK and Canada and document that the trade-off went from being very large in the pre-1990 sample period to being small (but significant) post-1990 with the onset of inflation targeting and the anchoring of inflation expectations. |
| Keywords: | Dynamic Multiplier; Inflation-Unemployment trade-off; instrumental variables; Marginal Rate of Transformation; Phillips curve |
| JEL: | C14 C32 E32 E52 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13480&r=all |
| By: | Bianchi, Francesco; Kung, Howard; Tirskikh, Mikhail |
| Abstract: | We construct and estimate a dynamic stochastic general equilibrium model that features demand- and supply-side uncertainty. Using term structure and macroeconomic data, we find sizable effects of uncertainty on risk premia and business cycle fluctuations. Both demand-side and supply-side uncertainty imply large contractions in real activity and an increase in term premia, but supply-side uncertainty has larger effects on inflation and investment. We introduce a novel analytical decomposition to illustrate how multiple distinct risk propagation channels account for these differences. Supply and demand uncertainty are strongly correlated in the beginning of our sample, but decouple in the aftermath of the Great Recession. |
| Keywords: | Business Cycles; Term Structure of Interest Rates; time-varying risk premia; Uncertainty shocks |
| JEL: | C11 C32 E32 G12 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13450&r=all |
| By: | Hochmuth, Brigitte; Kohlbrecher, Britta; Merkl, Christian; Gartner, Hermann |
| Abstract: | This paper proposes a new approach to evaluate the macroeconomic effects of the Hartz IV reform in Germany, which reduced the generosity of long-term unemployment benefits. We use a model with different unemployment durations, where the reform initiates both a partial effect and an equilibrium effect. The relative importance of these two effects and the size of the partial effect are estimated based on the IAB Job Vacancy Survey. Our novel methodology provides a solution for the existing disagreement in the macroeconomic literature on the unemployment effects of Hartz IV. We find that Hartz IV was a major driver for the decline of Germany's unemployment and that partial and equilibrium effect where of equal importance. We thereby contribute to the literature on partial and equilibrium effects of unemployment benefit changes. In addition, we are the first to provide direct empirical evidence on labour selection, which can be interpreted as one dimension of recruiting intensity. |
| Keywords: | Unemployment benefits reform,search and matching,Hartz reforms |
| JEL: | E24 E00 E60 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwqwdp:012019&r=all |
| By: | Magali Dauvin (Observatoire français des conjonctures économiques); Hervé Péléraux (Observatoire français des conjonctures économiques); Christine Rifflart (Observatoire français des conjonctures économiques) |
| Abstract: | Nous comparons les prévisions de croissance de l'économie française à l'horizon 2020 réalisées entre septembre et début novembre 2018 par 18 organismes (publics et privés, dont l'OFCE). Après avoir augmenté de 2,3 % en 2017, l'activité ralentirait pour l'ensemble des prévision- nistes interrogés à 1,6 % en moyenne en 2018. Il n'y a pas d'accélération prévue à l'horizon de l'exercice de prévision : l'activité progresserait en moyenne de 1,6 % en 2019 et de 1,5 % 2020 (avec 8 instituts sur 12 qui prévoient un ralentissement). Mais les moteurs de la croissance changeraient. En 2017, la croissance avait été tirée par une forte contribution de la demande intérieure hors stocks tandis que le commerce extérieur jouait négativement. L'histoire est toute autre en 2018, le commerce extérieur, par sa contribution positive, contribuerait à compenser partiellement une demande intérieure moins dynamique. En 2019 et 2020, c'est l'inverse. L'accélération de la consommation des ménages permise par l'amélioration des revenus soutiendrait la croissance, tandis que l'investissement resterait solide. L'environnement international serait moindre favorable et les risques sur la croissance, plutôt orientés à la baisse. Si un consensus existe autour de ce scénario central, il masque malgré tout des divergences entre instituts liées notamment aux hypothèses relatives au positionnement de l'économie française dans son cycle, et donc au degré de tensions dans l'économie. Pour tous, l'inflation reste globalement modérée en prévision (entre 1,4 % et 1,9 % en 2020 selon les instituts) mais l'inflation sous-jacente s'accélère, tout en restant inférieure à 2 %, et certains instituts considèrent que des contraintes d'offre existent, notamment sur le marché du travail. Le taux de chômage baisserait de 9,4 % en 2017 à entre 8,1 % pour les plus optimistes à 9,1 % les plus pessimistes en fin de période. La progression des salaires resterait malgré tout contenue sur la période (avec un maximum à 2,6 % en 2020). L'impact positif des réformes passées et en cours sur la croissance du PIB et la compétitivité des entreprises ne ressort pas véritablement des scénarios. La France est sortie de la Procédure de déficit excessif en 2018 et tous les instituts prévoient le respect des règles budgétaires concernant le déficit public, qui resterait en-deçà du seuil des 3 % à l'horizon 2020. Néanmoins, le déficit se dégraderait 2019, du fait de mesures exceptionnelles (remboursement aux entreprises de la taxe sur les dividendes et transformation du CICE en baisses de charges sociales employeurs) et d'une amélioration de la composante conjoncturelle plus limitée qu'en 2017. En 2020, il serait compris entre 2,7 % et 1,6 % du PIB. |
| Keywords: | Prévisions; Conjoncture; Croissance; Comptes Nationaux |
| JEL: | E2 E27 E37 E66 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/1eq0ohogg78n2auphpnh9hc31j&r=all |
| By: | Magali Dauvin (Observatoire français des conjonctures économiques); Hervé Péléraux (Observatoire français des conjonctures économiques); Christine Rifflart (Observatoire français des conjonctures économiques) |
| Abstract: | Nous comparons les prévisions de croissance de l'économie française à l'horizon 2020 réalisées entre septembre et début novembre 2018 par 18 organismes (publics et privés, dont l'OFCE). Après avoir augmenté de 2,3 % en 2017, l'activité ralentirait pour l'ensemble des prévision- nistes interrogés à 1,6 % en moyenne en 2018. Il n'y a pas d'accélération prévue à l'horizon de l'exercice de prévision : l'activité progresserait en moyenne de 1,6 % en 2019 et de 1,5 % 2020 (avec 8 instituts sur 12 qui prévoient un ralentissement). Mais les moteurs de la croissance changeraient. En 2017, la croissance avait été tirée par une forte contribution de la demande intérieure hors stocks tandis que le commerce extérieur jouait négativement. L'histoire est toute autre en 2018, le commerce extérieur, par sa contribution positive, contribuerait à compenser partiellement une demande intérieure moins dynamique. En 2019 et 2020, c'est l'inverse. L'accélération de la consommation des ménages permise par l'amélioration des revenus soutiendrait la croissance, tandis que l'investissement resterait solide. L'environnement international serait moindre favorable et les risques sur la croissance, plutôt orientés à la baisse. Si un consensus existe autour de ce scénario central, il masque malgré tout des divergences entre instituts liées notamment aux hypothèses relatives au positionnement de l'économie française dans son cycle, et donc au degré de tensions dans l'économie. Pour tous, l'inflation reste globalement modérée en prévision (entre 1,4 % et 1,9 % en 2020 selon les instituts) mais l'inflation sous-jacente s'accélère, tout en restant inférieure à 2 %, et certains instituts considèrent que des contraintes d'offre existent, notamment sur le marché du travail. Le taux de chômage baisserait de 9,4 % en 2017 à entre 8,1 % pour les plus optimistes à 9,1 % les plus pessimistes en fin de période. La progression des salaires resterait malgré tout contenue sur la période (avec un maximum à 2,6 % en 2020). L'impact positif des réformes passées et en cours sur la croissance du PIB et la compétitivité des entreprises ne ressort pas véritablement des scénarios. La France est sortie de la Procédure de déficit excessif en 2018 et tous les instituts prévoient le respect des règles budgétaires concernant le déficit public, qui resterait en-deçà du seuil des 3 % à l'horizon 2020. Néanmoins, le déficit se dégraderait 2019, du fait de mesures exceptionnelles (remboursement aux entreprises de la taxe sur les dividendes et transformation du CICE en baisses de charges sociales employeurs) et d'une amélioration de la composante conjoncturelle plus limitée qu'en 2017. En 2020, il serait compris entre 2,7 % et 1,6 % du PIB. |
| Keywords: | Prévisions; Conjoncture; Croissance; Comptes Nationaux |
| JEL: | E2 E27 E37 E66 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/6e5t5nm6gr8cern459t4kikj3o&r=all |
| By: | farhi, emmanuel; Maggiori, Matteo |
| Abstract: | Currently both the International Monetary System (IMS) and the International Price Systems (IPS) are dominated by the U.S. The emergence of China, both as reserve currency and as a currency of invoicing, is likely to disrupt this status quo. We provide a framework to understand the forces that will shape this transition and identify sources of instability. We highlight the risk of an abrupt shift triggered by a run on the dollar. |
| Keywords: | Confidence Crises; Dollar; Exorbitant Privilege; Nurkse Instability; reserve currencies; RMB; safe assets; Triffin dilemma |
| JEL: | D42 E12 E42 E44 F3 F55 G15 G28 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13453&r=all |
| By: | Camille Cornand (Centre National de la Recherche Scientifique (CNRS)); Paul Hubert (Observatoire français des conjonctures économiques) |
| Abstract: | Establishing the external validity of laboratory experiments in terms of inflation forecasts is crucial for policy initiatives to be valid outside the laboratory. Our contribution is to document whether different measures of inflation expectations based on various categories of agents (participants to experiments, households, industry forecasters, professional forecasters, financial market participants and central bankers) share common patterns by analyzing: the forecasting performances of these different categories of data; the information rigidities to which they are subject; the determination of expectations. Overall, the different categories of forecasts exhibit common features: forecast errors are comparably large and autocorrelated, forecast errors and forecast revisions are predictable from past information, which suggests the presence of information frictions. Finally, the standard lagged inflation determinant of inflation expectations is robust to the data sets. There is nevertheless some heterogeneity among the six different sets. If experimental forecasts are relatively comparable to survey and financial market data, central bank forecasts seem to be superior. |
| Keywords: | Inflation expectations; Experimental forecasts; Survey forecasts; Market -based forecasts; Central bank forecasts |
| JEL: | E3 E5 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/6o4qdck7489u7pqc068eeuqsnq&r=all |
| By: | Takumah, Wisdom |
| Abstract: | ABSTRACT Ghana’s desire to achieve sustainable economic growth with relatively stable price level pursue both monetary and fiscal policies that could lead to macroeconomic. This study examines the effects of fiscal and monetary policy on economic growth and determine the level of convergence of growth for Ghana by applying structural equation modeling (SEM) using time series data from 2008 to 2017. Both short run and long-run results revealed that the ratio of government spending to private investment was statistically significant and it exerted a positive impact on economic growth, an indication that government expenditure is a key channel through which economic growth can be achieved. It was also revealed that real interest rate which is a monetary policy tool have a negative effect on economic growth in Ghana. The study also revealed that government spending shocks decreases private investment in Ghana, which results in crowding out in the economy. It was recommended that to achieve higher and sustainable economic growth, government must embark on expansionary fiscal policies through investment in infrastructure development to create jobs and generate income tax to finance other developmental projects. Also, the Bank of Ghana must reduce its lending rates to encourage private sector development to enhance growth and development of the economy. |
| Keywords: | Fiscal Policy, Monetary policy, Interest rate, Sustainable economic growth, Structural equation modeling, Impulse response, Government spending, Private investment |
| JEL: | E4 E6 |
| Date: | 2019–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92104&r=all |
| By: | Equiza-Goni, J.; Faraglia, E.; Oikonomou, R. |
| Abstract: | We study the role of government debt maturity in currency unions to identify whether debt management can help governments hedge their budgets against spending shocks. We first use a novel and detailed dataset of debt portfolios of five Euro Area countries to run a battery of VARs, estimating the responses of holding period returns to fiscal shocks. We find that government portfolios, which in our sample comprise mainly of nominal assets, have not been effective in absorbing idiosyncratic fiscal risks, whereas they have been very effective in absorbing aggregate risks. To shed light on this finding, as well as to investigate what types of debt are optimal in a currency area in the presence of both aggregate and idiosyncratic shocks, we setup a formal model of optimal debt management with two countries, benevolent governments and distortionary taxes. Our key finding is that governments should focus on issuing inflation indexed long term debt since this allows them to take full advantage of fiscal hedging. When we look at the data we find a stark increase in the issuance of real long term debt since the beginning of the Euro in many of the countries in our sample, which our model explains as an optimal response of governments to the introduction of the common currency. |
| Keywords: | Debt Management, Fiscal Policy, Government Debt, Maturity Structure, Tax Smoothing |
| JEL: | E43 E62 H63 |
| Date: | 2019–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1890&r=all |
| By: | Adam Elbourne (CPB Netherlands Bureau for Economic Policy Analysis); Kan Ji (CPB Netherlands Bureau for Economic Policy Analysis) |
| Abstract: | This research re-examines the findings of the existing literature on the effects of unconventional monetary policy. It concludes that the existing estimates based on vector autoregressions in combination with zero and sign restrictions do not successfully isolate unconventional monetary policy shocks from other shocks impacting the euro area economy. In our research, we show that altering existing published studies by making the incorrect assumption that expansionary monetary shocks shrink the ECB’s balance sheet or even ignoring all information about the stance of monetary policy results in the same shocks and, therefore, the same estimated responses of output and prices. As a consequence, it is implausible that the shocks previously identified in the literature are true unconventional monetary policy shocks. Since correctly isolating unconventional monetary policy shocks is a prerequisite for subsequently estimating the effects of unconventional monetary policy shocks, the conclusions from previous vector autoregression models are unwarranted. We show this lack of identification for different specifications of the vector autoregression models and different sample periods. |
| JEL: | C32 E52 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:391&r=all |
| By: | Giovanni Dosi (Laboratory of Economics and Management); Marcelo C. Pereira (Universidade Estadual de Campinas); Andrea Roventini (Observatoire français des conjonctures économiques); Maria Enrica Virgillito (Scuola Superiore Sant'Anna) |
| Abstract: | In this work we develop an agent-based model where hysteresis in major macroeconomic variables (e.g., gross domestic product, productivity, unemployment) emerges out of the decentralized interactions of heterogeneous firms and workers. Building upon the “Schumpeter meeting Keynes” family of models (cf. in particular Dosi et al. (2016b, 2017c)), we specify an endogenous process of accumulation of workers’ skills and a state-dependent process of firms entry. Indeed, hysteresis is ubiquitous. However, this is not due to market imperfections, but rather to the very functioning of decentralized economies characterized by coordination externalities and dynamic increasing returns. So, contrary to the insider–outsider hypothesis (Blanchard and Summers, 1986), the model does not support the findings that rigid industrial relations may foster hysteretic behavior in aggregate unemployment. On the contrary, this contribution provides evidence that during severe downturns, and thus declining aggregate demand, phenomena like decreasing investment and innovation rates, skills deterioration, and declining entry dynamics are better candidates to explain long-run unemployment spells and reduced output growth. In that, more rigid labor markets may well dampen hysteretic dynamics by sustaining aggregate demand, thus making the economy more resilient. |
| Keywords: | Computational techniques; Employment; Institutions |
| JEL: | E24 E02 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/4h9cnu4n2k8tfri093jil1d739&r=all |
| By: | Kamil Galuscak; Jan Solc; Pawel Strzelecki |
| Abstract: | We investigate the cyclical properties of labour market flows in the Czech Republic and Poland. We find that the role of flows from and into inactivity in explaining the cyclical properties of unemployment and employment rates is smaller than that of flows between employment and unemployment, but is not negligible. The participation rate is weakly countercyclical in both countries, driven by the countercyclical net flow from inactivity to unemployment. This could be explained by fewer employment opportunities in recessions, so that more inactive individuals go to unemployment than directly to employment. Our results are very similar for the two countries, the only noticeable difference being that flows between employment and inactivity have a bigger impact on the participation and employment rates in Poland than those in the Czech Republic. |
| Keywords: | Employment, labour market flows, participation, unemployment, vector autoregression |
| JEL: | E17 E24 E32 J21 J64 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2018/17&r=all |
| By: | Hansen, Stephen; McMahon, Michael; Tong, Matthew |
| Abstract: | Why do long-run interest rates respond to central bank communication? Whereas existing explanations imply a common set of signals drives short and long-run yields, we show that news on economic uncertainty can have increasingly large effects along the yield curve. To evaluate this channel, we use the publication of the Bank of England's Inflation Report, from which we measure a set of high-dimensional signals. The signals that drive long-run interest rates do not affect short-run rates and operate primarily through the term premium. This suggests communication plays an important role in shaping perceptions of long-run uncertainty. |
| Keywords: | communication; Machine Learning; monetary policy |
| JEL: | E52 E58 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13438&r=all |
| By: | Randall Wright; Sylvia Xiaolin Xiao; Yu Zhu |
| Abstract: | This paper studies dynamic general equilibrium models where firms trade capital in frictional markets. Gains from trade arise due to ex ante heterogeneity: some firms are better at investment, so they build capital in the primary market; others acquire it in the secondary market. Cases are considered with random search and bargaining, or directed search and posting. For each, we provide results on existence, uniqueness, efficiency and comparative statics. Monetary and fiscal policy are discussed at length. We also discuss how productivity dispersion can be countercyclical while capital reallocation and its price are procyclical. |
| Keywords: | Monetary Policy |
| JEL: | E22 E44 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:19-4&r=all |
| By: | Lartey, Lawrencia |
| Abstract: | This study was undertaken to determine the pass through effect of the Central bank’s monetary policy rate on commercial banks’ lending rates. Specifically, the study sought to ascertain the short and long run relationship between these variables of interest. It employed monthly time series data spanning from 2002 to 2017 which was sourced mainly from the World Development Indicator (WDI) and Bank of Ghana (BOG). Autoregressive Distributed Lag Model (ARDL) was the estimation technique used for analyzing the data. Estimates from the Augmented Dicker- Fuller (ADF) and Phillips-Perron (PP) unit root test showed that the variables were all integrated of order one (1). The findings found that there is a positive relationship between average lending rates and Monetary Policy Rate (MPR). MPR was significant in both the long and short run and had a large marginal effect on lending rates compared to all the other variables. However, in the short run the speed of adjustment was relatively slow. This implied a more rigid downward adjustment of average lending rate to changes in all the variables. Money supply in the economy denoted by M2+ was negatively related to average lending rates. Treasury bill rate was the only variable which was negatively insignificant in the short run. Based on the above findings the study recommends appropriate measures to be implemented to assist in fully developing the financial markets. |
| Keywords: | Average Lending Rates, Monetary Policy Rate, Bank of Ghana |
| JEL: | E4 E5 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92244&r=all |
| By: | Gómez, Wilman Arturo; Posada, Carlos Esteban; Rhenals, Remberto |
| Abstract: | Resumen: El objetivo de este trabajo fue explicar el mayor o menor ritmo de crecimiento de la productividad total de los factores (PTF) en las principales economías del este asiático y latinoamericanas entre 1960 y 2015. Encontramos evidencia econométrica favorable a una hipótesis: el aumento del gasto público de consumo, dada la evolución de otros factores, tiene un efecto negativo sobre la PTF. Otros resultados del ejercicio econométrico, aquellos relativos a hipotéticos efectos positivos de la inversión pública y de las importaciones sobre la PTF, no fueron, unos, tan robustos, ni, otros, tan confiables como hubiésemos esperado. Abstract : The objective of this paper was to explain the greater or lesser growth rate of total factor productivity, TFP, in the main East Asian and Latin American economies between 1960 and 2015. We found econometric evidence favorable to this hypothesis: the increase in public consumption expenditures, given the evolution of other factors, reduces the TFP. Other results of the econometric exercise, those that are related to hypothetical positive effects of public investment and imports on TFP were not as robust or as reliable as we would have expected. |
| Keywords: | crecimiento del PIB per cápita, productividad total de los factores, capital físico, capital humano, consumo público, inversión pública, importaciones, cointegración panel |
| JEL: | C33 E22 E24 F43 |
| Date: | 2018–12–03 |
| URL: | http://d.repec.org/n?u=RePEc:col:000196:017178&r=all |
| By: | Alberto Cardacci (Lombardy Advanced School of Economics Milan); Francesco Saraceno (Observatoire français des conjonctures économiques) |
| Abstract: | We introduce a macroeconomic model with heterogeneous households and an aggregate banking sector in order to analyze the impact of rising income inequality under different credit scenarios. Growing inequality produces debt‐led consumption boom dynamics when the banking sector is characterized by a lower capital requirement and a higher willingness to lend. Instead, when inequality rises but the banking sector is highly regulated, aggregate demand and output fall. Our results also yield new insights on the appropriate fiscal policy reaction to stabilize the economy: acting on the progressivity of the tax system seems more effective than a proactive countercyclical fiscal policy. |
| JEL: | C63 D31 E62 G1 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/4lo1d5opnh8llpgfefguq62epv&r=all |
| By: | Yu Zhu; Scott Hendry |
| Abstract: | This paper considers an economy where central-bank-issued fiat money competes with privately issued e-money. We study a policy-setting game between the central bank and the e-money issuer and find (1) the optimal monetary policy of the central bank depends on the policy of the private issuer and may deviate from the Friedman rule; (2) there may exist multiple equilibria; (3) when the economy approaches a cashless state, the central bank’s optimal policy improves the market power of the e-money issuer and can lead to a discrete decrease in welfare and a discrete increase in inflation; and (4) first best cannot be achieved. Central-bank-issued e-money leads to a simple optimal policy that achieves the first best. |
| Keywords: | Digital Currencies; Monetary Policy |
| JEL: | E52 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:19-1&r=all |
| By: | Gabarro, Marc; Irani, Rustom M; Peydró, José Luis; van Bekkum, Sjoerd |
| Abstract: | We examine the effects of macroprudential policy for household leverage, liquidity, and default. For identification, we exploit the August 2011 introduction of a limit on mortgage loan-to-value ratios in the Netherlands, in conjunction with population tax-return and property ownership data linked to the universe of housing transactions. First-time homebuyers most affected by the policy shock substantially reduce household leverage and mortgage debt servicing costs by taking on less mortgage debt. Rather than buying more affordable homes or taking non-regulated loans, households consume greater liquidity in the year of home purchase to plug the funding gap. Improvements in household solvency are accompanied by a lower mortgage default rate; however, along the extensive margin, fewer households transition from renting into ownership. These effects are stronger among poorer households and those with fewer liquid assets. |
| Keywords: | financial regulation; household finance; household leverage; Liquidity vs. Solvency; macroprudential policy; Residential Mortgages |
| JEL: | D14 D31 E21 E58 G21 G28 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13503&r=all |
| By: | Ojo, Marianne |
| Abstract: | It appears the United States Senate may have been trying to make the points that renegotiating or enacting new legislations require more energy, efforts and time than many would appreciate – particularly in the processes and attempts involved in dismantling the Affordable Care Act – an attempt which ultimately proved unsuccessful – even though certain key elements were eventually replaced through the Tax Reform Bill which was approved in December 2017 – the first major legislative success of the Trump Administration. However the Affordable Care Act remains a testimony of efforts which had been invested in designing a legislation – which although not the ultimate legislation for some, still partially addresses certain concerns of the medical system. Certain other agreements have not had it so easy during the first twelve months of the new administration. Notably, the Trans Pacific Partnership, the Paris Global Climate Agreement – and even the North American Free Trade Area (still being re negotiated) – which have either been withdrawn from, or face the threat of being withdrawn from. So which alliances appear to have been understated, dismantled or being re considered, during and following the first year marking the inauguration of the 45th President of the United States? |
| Keywords: | Brexit; Trans Pacific Partnership; North American Free Trade Area; African Union; European Union; trade agreements; environmental agreements; Affordable Care Act; Deferred Action for Childhood Arrivals Program |
| JEL: | E3 E31 E32 E4 E44 G2 G28 K23 M4 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:84050&r=all |
| By: | Farmer, Roger E A; Zabczyk, Pawel |
| Abstract: | We demonstrate that the Fiscal Theory of the Price Level (FTPL) cannot be used to determine the price level uniquely in the overlapping generations (OLG) model. We provide two examples of OLG models, one with three 3-period lives and one with 62-period lives. Both examples are calibrated to an income profile chosen to match the life-cycle earnings process in U.S. data estimated by Guvenen et al. (2015). In both examples, there exist multiple steady-state equilibria. Our findings challenge established views about what constitutes a good combination of fiscal and monetary policies. As long as the primary deficit or the primary surplus is not too large, the fiscal authority can conduct policies that are unresponsive to endogenous changes in the level of its outstanding debt. Monetary and fiscal policy can both be active at the same time. |
| Keywords: | FTPL; Indeterminacy; Monetary and Fiscal Policy; monetary policy; OLG model |
| JEL: | E31 E52 E58 H62 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13432&r=all |
| By: | Kalemli-Ozcan, Sebnem; Laeven, Luc; Moreno, David |
| Abstract: | We quantify the role of financial factors behind the sluggish post-crisis performance of European firms. We use a firm-bank-sovereign matched database to identify separate roles for firm and bank balance sheet weaknesses arising from changes in sovereign risk and aggregate demand conditions. We find that firms with higher debt levels and a higher share of short-term debt reduce their investment more after the crisis. This negative effect is stronger for firms linked to weak banks with exposures to sovereign risk, signifying increased rollover risk. These financial channels explain about 60% of the decline in aggregate corporate investment. JEL Classification: E22, E32, E44, F34, F36, G32 |
| Keywords: | bank-sovereign nexus, debt maturity, firm investment, rollover risk |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192241&r=all |
| By: | Amat Adarov (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | We use Bayesian and GMM panel VAR frameworks to study interactions between financial cycles and macroeconomic imbalances based on a global sample of 24 countries spanning the period 1998‑2012. We find that financial cycles play an important role in shaping macroeconomic imbalances with expansions inducing economic overheating and a downward pressure on public debt-to-GDP ratios, and vice versa. Bank-based economies exhibit a deeper and faster response of business cycles to financial misalignments, while the impact in market-based economies is milder, but more persistent, as well as more significant for current account and public debt dynamics. Financial cycles invoke a particularly strong reaction of current account balances and especially public debt ratios in the euro area. |
| Keywords: | financial cycles, macroeconomic imbalances, financial stability, business cycles, panel VAR, Bayesian VAR |
| JEL: | E44 F32 G15 F4 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:wii:wpaper:162&r=all |
| By: | Raphael Auer |
| Abstract: | This paper discusses the economics of how Bitcoin achieves data immutability, and thus payment finality, via costly computations, ie "proof-of-work". Further, it explores what the future might hold for cryptocurrencies modelled on this type of consensus algorithm. The conclusions are, first, that Bitcoin counterfeiting via "double-spending" attacks is inherently profitable, making payment finality based on proof-of-work extremely expensive. Second, the transaction market cannot generate an adequate level of "mining" income via fees as users free-ride on the fees of other transactions in a block and in the subsequent blockchain. Instead, newly minted bitcoins, known as block rewards, have made up the bulk of mining income to date. Looking ahead, these two limitations imply that liquidity is set to fall dramatically as these block rewards are phased out. Simple calculations suggest that once block rewards are zero, it could take months before a Bitcoin payment is final, unless new technologies are deployed to speed up payment finality. Second-layer solutions such as the Lightning Network might help, but the only fundamental remedy would be to depart from proof-of-work, which would probably require some form of social coordination or institutionalisation. |
| Keywords: | cryptocurrencies, crypto-assets, digital currencies, blockchain, proof-of-work, proof-of-stake, distributed ledger technology, consensus, bitcoin, ethereum, money, digitalisation, finance, history of money |
| JEL: | D40 D20 E42 E51 F31 G12 G28 G32 G38 L10 L50 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:765&r=all |
| By: | Bhattarai, Keshab; Nguyen, Dung T.K.; Nguyen, Chan V |
| Abstract: | The study applies a multi-sector multi-household static general equilibrium tax model to assess economy-wide impacts of taxes in Vietnam. It examines two tax reform scenarios based on the tax reform plan proposed by the Vietnam Ministry of Finance. The first scenario is increasing 20% from the current Value-Added Tax (VAT) rate. The second scenario relates to setting a competitive Corporate Income Tax (CIT) rate to the lowest rate in ASEAN countries. In general correction of current tax distortions will have positive impacts on labour supply, utility, consumption, output and welfare of households as they reallocate resources from more to less productive sectors of the economy. The CGE model allows to find the impacts on microeconomic and macroeconomic variables including employments, output, prices and capital stock as well as on welfare of households of an increase in the standard VAT rate from 10 to 12% and reduction in the CIT rate from 20 to 17% as considered by the current government. This study contributes to the literature on the CGE model for Vietnam economy, it is also a small step towards finding the optimal tax structure in Vietnam. |
| Keywords: | Tax reform; general equilibrium; tax analysis; Vietnam |
| JEL: | C68 D58 E62 H3 |
| Date: | 2018–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92068&r=all |
| By: | Maurizio Iacopetta (Observatoire français des conjonctures économiques); Raoul Minetti (Michigan State University) |
| Abstract: | The Kiyotakiand Wright model has exerted a considerable influence on the monetary search literature. We argue that the model also delivers important insights into abroader range of macroeconomic and development issues. The analysis studies howmarket frictions and the liquidity of assets affect the distribution of income. Experimentsillustrate how the economy adjusts to shocks to asset returns and to the matchingtechnology. They also deal with long-run transition. An experiment interprets thereversal of fortune hypothesis as a situation in which an economy with a low-returnasset takes over a similar economy with a high-return asset |
| JEL: | C61 C63 E41 E27 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/2bedunljk79gt86fbf15pvnnc5&r=all |
| By: | Etienne Farvaque (Economie Quantitative, Intégration, Politiques Publiques et Econométrie); Antoine Parent (Observatoire français des conjonctures économiques); Piotr, Cracow University) Stanek (Cracow University) |
| Abstract: | We demonstrate that even though during WWII the interest rate was close to zero supporting the financing of the military effort, dissent inside the FOMC occurred with a similar frequency to other policy episodes. Our analysis highlights that the debates which resulted in dissents turned around two broad issues: the size of the Fed’s balance sheet as well as the functioning of and communication with financial markets. Thus, we argue that the conventional view depicting the Fed as merely accommodating treasury needs should be revised. Our detailed investigation of dissents emphasises the modernity of the objections raised by Fed officials. |
| Keywords: | Central Banking; Federal open market committee; Governance; Public debt; WW2 |
| JEL: | D71 D78 E58 N12 N42 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/2cuu3uj58199fphtovctj05ish&r=all |
| By: | Amzallag, Adrien; Calza, Alessandro; Georgarakos, Dimitris; Sousa, João |
| Abstract: | Do negative policy rates hinder banks’ transmission of monetary policy? To answer this question, we examine the behaviour of Italian mortgage lenders using a novel loan-level dataset. When policy rates turn negative, banks with higher ratios of retail overnight deposits to total assets charge more on new fixed rate mortgages. This suggests that the funding structure of banks may matter for the transmission of negative policy rates, especially for long-maturity illiquid assets. Nevertheless, the aggregate economic implications for households are small, suggesting that concerns about inefficient monetary policy transmission to households under modestly negative rates are likely overstated. JEL Classification: E40, E52, E58, G21 |
| Keywords: | bank lending, monetary policy, mortgages, negative interest rates |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192243&r=all |
| By: | Carriero, Andrea; Corsello, Francesco; Marcellino, Massimiliano |
| Abstract: | Global developments play an important role for domestic inflation rates. Earlier literature has found that a substantial amount of the variation in a large set of national inflation rates can be explained by a single global factor. However, inflation volatility has been typically neglected, while it is clearly relevant both from a policy point of view and for structural analysis and forecasting. We study the evolution of inflation rates in several countries, using a novel model that allows for commonality in both levels and volatilities, in addition to country-specific components. We find that inflation volatility is indeed important, and a substantial fraction of it can be attributed to a global factor that is also driving inflation levels and their persistence. While various phenomena may contribute to global inflation dynamics, it turns out that since the early '90s level and volatility of the estimated global factor are correlated with the Chinese PPI and Oil inflation. The extent of commonality among core inflation rates and volatilities is substantially smaller than for overall inflation, which leaves scope for national monetary policies. Finally, we show that the point and density forecasting performance of the model is good relative to standard benchmarks, which provides additional evidence on its reliability. |
| Keywords: | Forecasting; Global factors; inflation; large datasets; Multivariate Autoregressive Index models; Reduced Rank Regressions; volatility |
| JEL: | C32 C53 E31 E37 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13470&r=all |
| By: | Mehmet Balcilar (Department of Economics, Eastern Mediterranean University); Zeynel Abidin Ozdemir (Gazi University, Ankara, Turkey); Huseyin Ozdemir (Gazi University, Ankara, Turkey); Mark E. Wohar (University of Nebraska-Omaha, USA) |
| Abstract: | This study examines volatility spillover dynamics among the S&P 500 index, the US 10-year Treasury yield, the US dollar index futures and the commodity price index. The focus of the study is to analyze effects of Fed’s unconventional monetary policy on the US financial markets. We use realized volatility measures based on daily data covering the period from December 29, 1996 to November 12, 2018. To address nonlinear and asymmetric spillover dynamics in low and high volatility states, we propose a new regime-dependent spillover index based on a smooth transition vector autoregressive (STVAR) model, extending the study of Diebold and Yilmaz (2009,2012) to regime switching models. When applied to US financial data, we find strong evidence that the US financial market risk structure changes after the announcement of quantitively easing (QE) through the portfolio balance channel. The risk spillover moves from purchased assets to non-purchased assets after the QE announcements. |
| Keywords: | Unconventional Monetary Policy; US Financial Markets; Volatility Spillover; STVAR Model |
| JEL: | C01 C51 C58 E58 G01 G11 G12 G14 Q43 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:emu:wpaper:15-47.pdf&r=all |
| By: | Adrian, Tobias; Stackman, Daniel; Vogt, Erik |
| Abstract: | We estimate a highly significant price of risk that forecasts global stock and bond returns as a nonlinear function of the VIX. We show that countries' exposure to the global price of risk is related to macroeconomic risks as measured by output, credit, and inflation volatility, the magnitude of financial crises, and stock and bond market downside risk. Higher exposure to the global price of risk corresponds to both higher output volatility and higher output growth. We document that the transmission of the global price of risk to macroeconomic outcomes is mitigated by the magnitude of stabilization in the Taylor rule, the degree of countercyclicality of fiscal policy, and countries' tendencies to employ prudential regulations. The estimated magnitudes are quantitatively important and significant, with large cross sectional explanatory power. Our findings suggest that macroeconomic and financial stability policies should be considered jointly. |
| Keywords: | Financial Stability; Fiscal policy; monetary policy; regulatory policy |
| JEL: | G01 G12 G17 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13435&r=all |
| By: | Jose-Maria Da-Rocha; Diego Restuccia; Marina M. Tavares |
| Abstract: | What accounts for differences in output per capita and total factor productivity (TFP) across countries? Empirical evidence points to resource misallocation across heterogeneous production units as an important factor. We study misallocation in a general equilibrium model of establishment productivity where the distribution of productivity is characterized in closed form and responds to the same policy distortions that create misallocation. In this framework, policy distortions not only misallocate resources across a given set of productive units (static effect), but also create disincentives for productivity improvement thereby altering the productivity distribution and equilibrium prices (dynamic effect), further lowering aggregate output and TFP. The dynamic effect is substantial contributing to a doubling of the static misallocation effect. Reducing the dispersion in distortions by 25 percentage points to the level of the U.S. benchmark economy implies an increase in relative aggregate output of 123 percent, where 54 percent arises from factor misallocation (static effect). |
| Keywords: | distortions, misallocation, investment, endogenous productivity, establishments. |
| JEL: | O11 O3 O41 O43 O5 E0 E13 C02 C61 |
| Date: | 2019–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-629&r=all |
| By: | Auer, Raphael |
| Abstract: | This paper discusses the economics of how Bitcoin achieves data immutability, and thus payment finality, via costly computations, ie "proof-of-work". Further, it explores what the future might hold for cryptocurrencies modelled on this type of consensus algorithm. The conclusions are, first, that Bitcoin counterfeiting via "double-spending" attacks is inherently profitable, making payment finality based on proof-of-work extremely expensive. Second, the transaction market cannot generate an adequate level of "mining" income via fees as users free-ride on the fees of other transactions in a block and in the subsequent blockchain. Instead, newly minted bitcoins, known as block rewards, have made up the bulk of mining income to date. Looking ahead, these two limitations imply that liquidity is set to fall dramatically as these block rewards are phased out. Simple calculations suggest that once block rewards are zero, it could take months before a Bitcoin payment is final, unless new technologies are deployed to speed up payment finality. Second-layer solutions such as the Lightning Network might help, but the only fundamental remedy would be to depart from proof-of-work, which would probably require some form of social coordination or institutionalisation. |
| Keywords: | Bitcoin; blockchain; cryptocurrencies; Digital Currencies; distributed ledger technology; ethereum; Finance; money; proof-of-stake; Proof-of-Work |
| JEL: | D20 D40 E42 E51 F31 G12 G28 G32 G38 L10 L50 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13506&r=all |
| By: | Elsby, Michael (University of Edinburgh); Solon, Gary (University of Michigan) |
| Abstract: | For more than 80 years, many macroeconomic analyses have been premised on the assumption that workers' nominal wage rates cannot be cut. Contrary evidence from household surveys reasonably has been discounted on the ground that the measurement of frequent wage cuts might be an artifact of reporting error. This article summarizes a more recent wave of studies based on more accurate wage data from payroll records and pay slips. By and large, these studies indicate that, except in extreme circumstances (when nominal wage cuts are either legally prohibited or rendered beside the point by very high inflation), nominal wage cuts from one year to the next appear quite common, typically affecting 15-25 percent of job stayers in periods of low inflation. |
| Keywords: | nominal wage rigidity, payroll records |
| JEL: | J3 E24 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12125&r=all |
| By: | Vyacheslav Arbuzov; Yu Awaya; Hiroki Fukai; Makoto Watanabe |
| Abstract: | This paper presents a simple and tractable equilibrium model of repos, where collateralized credit emerges under limited commitment. We show that even if there is no time variation in fundamentals, repo markets can fluctuate endogenously over time. In our theory, repo market fragilities are associated with endogenous fluctuations in trade probabilities, collateral values, and debt limits. We show that the collateral premium of a durable asset will become the lowest right before a recession and the highest right after the recession, and that secured credit is acyclical. |
| Keywords: | collateral, search, endogenous credit market fluctuations |
| JEL: | E30 E50 C73 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7518&r=all |
| By: | Benhima, Kenza |
| Abstract: | Dispersed information can generate booms and busts in economic activity. Boom-bust dynamics appear when firms are initially over-optimistic about demand due to a noisy private news. Consequently, they overproduce, which generates a boom and depresses their markups. Because the news is private, firms cannot relate these low markups to aggregate optimism. As low markups can also signal low demand, this overturns their expectations, generating a bust. We emphasize a novel role for imperfect common knowledge: dispersed information makes firms ignorant about their competitors' actions, which makes them confuse high noise-driven supply with low fundamental demand. |
| Keywords: | Expectations; Imperfect Common Knowledge; Recessions |
| JEL: | D52 D83 E32 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13444&r=all |
| By: | Gries, Thomas (Universitat Paderborn); Naude, Wim (UNU-MERIT, and Maastricht University, RWTH Aachen University, IZA Institute of Labor Economics, Bonn.) |
| Abstract: | Rapid technological progress in artificial intelligence (AI) has been predicted to lead to mass unemployment, rising inequality, and higher productivity growth through automation. In this paper we critically re-assess these predictions by (i) surveying the recent literature and (ii) incorporating AI-facilitated automation into a product variety-model, frequently used in endogenous growth theory, but modified to allow for demand-side constraints. This is a novel approach, given that endogenous growth models, and including most recent work on AI in economic growth, are largely supply-driven. Our contribution is motivated by two reasons. One is that there are still only very few theoretical models of economic growth that incorporate AI, and moreover an absence of growth models with AI that takes into consideration growth constraints due to insuficient aggregate demand. A second is that the predictions of AI causing massive job losses and faster growth in productivity and GDP are at odds with reality so far: if anything, unemployment in many advanced economies is historically low. However, wage growth and productivity is stagnating and inequality is rising. Our paper provides a theoretical explanation of this in the context of rapid progress in AI. |
| Keywords: | Technology, artificial intelligence, productivity, labour demand, innovation, growth theory |
| JEL: | O47 O33 J24 E21 E25 |
| Date: | 2018–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:unm:unumer:2018047&r=all |
| By: | Rojas Rivera, Ángela Milena |
| Abstract: | Resumen: Este artículo ofrece un primer balance de los estudios en historia fiscal de Colombia sobre siglo XX. Como parte de la metodología se delimita el campo de los estudios en historia fiscal, y se concentra en resultados de investigación publicados desde 1970, cuando el sistema universitario colombiano se expande y consolida, hasta el 2018. En consecuencia, se seleccionan 40 estudios que se caracterizan cuantitativa y cualitativamente en tres grandes aspectos: metodología, autor, y divulgación. De esta manera, se encuentra un ritmo de producción moderado con un estudio por año, en promedio, desde 1980. La política fiscal ha sido el campo predominante desde el cual se da el encuentro con la perspectiva histórica (46%), seguido por los estudios propiamente en historia fiscal (28%), y los estudios desde el derecho público (12.8%) y la economía política (12.8%). Los enfoques cepalino y el keynesiano, más frecuentemente empleados en los años 80s y 90s, perdieron presencia a partir del año 2000 en favor de los enfoques neoclásico y neoinstitucional. El balance general indica un superávit con la emergencia de varios libros de calidad que ofrecen visiones de conjunto, análisis históricos de las décadas de 1920 y 1930, análisis sobre tributación, y la construcción de las principales series estadísticas de las finanzas públicas del Gobierno Nacional Central. También se detecta un déficit de estudios sobre finanzas públicas a nivel regional, en relación con el impacto del manejo fiscal sobre el desarrollo regional y sobre arreglos institucionales y control fiscal. Es deseable que el campo de la historia fiscal se amplíe y profundice a través de la entrada de más investigadores, la exploración de nuevas fuentes documentales y enfoques teóricos para ganar perspectiva histórica no sólo de los fenómenos fiscales, sino también del Estado colombiano durante el siglo XX y su relación con la economía. Abstract : This article provides a first assessment of the studies on the fiscal history of Colombia of the 20th century. The methodology delimits the field of fiscal studies, and focuses on research results published since 1970, when the Colombian university system expands and strengthens, until 2018. Hence, it selects 40 studies characterized quantitatively and qualitatively in three major aspects: methodology, author, and divulgation. Thus, it finds a moderate production rate in the field with one study per year, on average, since 1980. Fiscal policy has been the predominant field from which the historical perspective is built (46%), followed by proper studies in fiscal history (28%), public law studies (12.8%) and political economy studies (12.8%). The cepalino and Keynesian approaches, most frequently used in the 80s and 90s, reduced their participation since the 2000 thus giving room to the neoclassical and neo-institutional approaches. The overall balance indicates a surplus with the emergence of several quality books that offer general views, historical analyses on the decades of 1920 and 1930, analysis on taxation, and statistical building of main fiscal series of the Central National Government. There is a deficit of studies on public finance at the regional level, regarding the impact of fiscal management on regional development, and institutional arrangements and fiscal control. It is desirable that the field of fiscal history expands and deepens through the entry of more researchers, the exploration of new documentary sources and theoretical approaches to gain historical perspective not only of fiscal phenomena but also of the Colombian state building during the 20th century and its relationship with the economy. |
| Keywords: | historia fiscal, Colombia, siglo XX, historia económica, estudios fiscales, derecho fiscal, economía política, política fiscal. |
| JEL: | N01 N16 E62 H1 |
| Date: | 2018–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:col:000196:017180&r=all |
| By: | Timothy J. Kehoe; Carlos Gustavo Machicado; José Peres-Cajías |
| Abstract: | After the economic reforms that followed the National Revolution of the 1950s, Bolivia seemed positioned for sustained growth. Indeed, it achieved unprecedented growth from 1960 to 1977. The rapid accumulation of debt due to persistent deficits and a fixed exchange rate policy during the 1970s led to a debt crisis that began in 1977. From 1977 to 1986, Bolivia lost almost all the gains in GDP per capita that it had achieved since 1960. In 1986, Bolivia started to grow again, interrupted only by the financial crisis of 1998–2002, which was the result of a drop in the availability of external financing. Bolivia has grown since 2002, but government policies since 2006 are reminiscent of the policies of the 1970s that led to the debt crisis, in particular, the accumulation of external debt and the drop in international reserves due to a de facto fixed exchange rate since 2012. |
| JEL: | E52 E63 H63 N16 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25523&r=all |
| By: | Ray C. Fair (Cowles Foundation, Yale University) |
| Abstract: | This paper lists 19 points that follow from results I have obtained using a structural macroeconomic model (SEM). Such models are more closely tied to the aggregate data than are DSGE models, and I argue that DSGE models and similar models should have properties that are consistent with these points. The aim is to try to bring macro back to its empirical roots. |
| Keywords: | Macro models, Macro properties |
| JEL: | E1 E2 E3 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2165&r=all |
| By: | BAYALE, Nimonka |
| Abstract: | In WAEMU countries, the lack of consistent domestic resources for financing development is a real financial handicap. Foreign aid is necessary. However, economic literature is not unanimous on the ability of foreign aid to promote fiscal resources mobilization. In this paper, we analyze the effect of different forms and components of international aid on tax revenues of WAEMU countries using WDI, OECD and BDSM databases. We apply the instrumental variable method to a panel data set covering the period 1985-2016. In our analyzes, we first distinguish bilateral and multilateral aid. Then we also differentiate concessional aid, technical assistance and grants or loans contained in international aid. The results indicate firstly that multilateral aid has a positive and significant impact on tax revenues, while bilateral aid does not. Secondly, with axamine the decomposed effect of aid. Our results show that concessional form of aid and technical assistance enhance fiscal resources mobilization. But loans reduce tax effort. Finally, these results reveal that when aid is taken in aggregate form, its effect on tax revenues is ambiguous. As economic policies implications, we argue that improving institutional quality would make foreign aid efficient in tax collection. We also recommend that foreign aid would be redirected towards investment for effective tax systems in these countries. Moreover, to remedy the disincentive effect created by loans, we particularly argue that they should be channelled more to non-governmental organisations or to the private sector rather than to governments of these countries. |
| Keywords: | Foreign aid, tax revenues, LSDV-IV estimator, WAEMU |
| JEL: | C33 E62 F35 |
| Date: | 2019–01–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92214&r=all |
| By: | Elena Crivellaro (Organization for Economic Co-operation and Development); Aikaterini Karadimitropoulou (Bank of Greece and University of East Anglia) |
| Abstract: | Technological advancements have been affecting labour shares through a steep decline in the relative price of investment goods. This has lowered the cost of capital allowing firms to replace labour with capital. Nonetheless, financing obstacles could obstruct investment in both labour and capital. This paper assesses the role of financial constraints in hampering the effect of relative investment prices change on labour shares, using data for up to 26 OECD countries over the period 1995-2014. We find statistically significant, economically large and robust effects of financial constraints acting as a channel to hinder the effect of relative investment prices changes on labour shares. In particular, our results reveal that: (i) there has been a global decline in the labour share that coincides with declines in the relative price of investment goods and this decline has been heterogeneous across countries with different levels of financial constraints; (ii) industries highly dependent on external finance face a lower decline in the labour share following a drop in the relative investment price than industries that are less dependent on external finance, possibly because they are more constrained in accessing funds to finance investment; (iii) industry-level investment prices affect the labour share partly through changes within-firms rather than through composition effects, with smaller effects for firms that are more dependent on external finance and larger effects in less financially constrained and highly productive firms. These results are corroborated by an estimated aggregate elasticity of substitution between capital and labour greater than one, and higher for countries that are less financially constrained. |
| Keywords: | Labour Income Share; Financial Constraints;External Financial Dependence;Relative investment price |
| JEL: | E25 E44 O33 J21 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:257&r=all |
| By: | Furtado, Delia (University of Connecticut); Papps, Kerry L. (University of Bath); Theodoropoulos, Nikolaos (University of Cyprus) |
| Abstract: | Social Security Disability Insurance (SSDI) take-up tends to increase during recessions. We exploit variation across immigrant groups in the non-pecuniary costs of participating in SSDI to examine the role that costs play in applicant decisions across the business cycle. We show that immigrants from country-of-origin groups that have lower participation costs are more sensitive to economic conditions than immigrants from high cost groups. These results do not seem to be driven by variation across groups in sensitivity to business cycles or eligibility for SSDI. Instead, they appear to be primarily driven by differences in work norms across origin countries. |
| Keywords: | disability insurance, immigrants, unemployment rates, ethnic networks |
| JEL: | E32 J61 H55 I18 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12097&r=all |
| By: | Jardim, Ekaterina (Amazon); Solon, Gary (University of Michigan); Vigdor, Jacob (University of Washington) |
| Abstract: | For more than 80 years, many macroeconomic analyses have been premised on the assumption that workers' nominal wage rates cannot be cut. The U.S. evidence on this assumption has been inconclusive because of distortions from reporting error in household surveys. Following a British literature, we reconsider the issue with more accurate wage data from the payroll records of most employers in the State of Washington over the period 2005-2015. For every one of the 40 four-quarters-apart periods for which we observe year-to-year wage changes, we find that at least 20 percent of job stayers experience nominal wage reductions. |
| Keywords: | nominal wage rigidity, payroll records |
| JEL: | J3 E24 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12124&r=all |
| By: | George A. Alessandria; Horag Choi |
| Abstract: | We study how changes in trade barriers contributed to the dynamics of the US trade balance and real exchange rate since 1980 - a period when trade tripled. Using two dynamic trade models, we decompose fluctuations in the trade balance into terms related to trade integration (global and unilateral) and business cycle asymmetries. We find three main results. First, the relatively large US trade deficits as a share of GDP in the 2000s compared to the 1980s mostly reflect a rise in the trade share of GDP. Second, controlling for trade, only about 60 percent of net trade flows are due to business cycle asymmetries. And third, about two-thirds of the contribution of business-cycle asymmetries are a lagged response. For instance, the short-run Armington elasticity is about 0.2 while the long-run is closer to 1.12 with only 6.9 percent of the gap closed per quarter. We show that a two-country IRBC model with a dynamic exporting decision, pricing-to-market, and trade cost shocks can account for the dynamics of the US trade balance, real exchange rate, and trade integration. The model clarifies how permanent and transitory changes in trade barriers affect the trade balance and how to identify changes in trade barriers. We also show the effect of temporary trade policies on the trade balance depends on whether they induce a trade war. |
| JEL: | E32 F4 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25563&r=all |
| By: | Mauro Napoletano (Observatoire français des conjonctures économiques) |
| Abstract: | This article discusses recent advances in agent-based modelling applied to macroeconomic analysis. I first introduce the building blocks of agent-based models. Furthermore, by relying on examples taken from recent works, I argue that that agent-based models may provide complementary or new lights with respect to more standard models on key macroeconomic issues like endogenous business cycles, the interactions between business cycles and long-run growth, and the role of price vs. quantity adjustments in the return to full employment. Finally, I discuss some limits of agent-based models and how they are currently addressed in the literature. |
| Keywords: | Agent based models; Macroeconomic analysis; Endogenous business cycles; Short and long run dynamics; Monetary and fiscal policies; Price vs quantity adjustments |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/2qdhj5485p93jrnf08s1meeap9&r=all |
| By: | Andrew Glover; Jacob Short |
| Abstract: | We estimate an aggregate elasticity of substitution between capital and labor near or below one, which implies that capital deepening cannot explain the global decline in labor's share. Our methodology derives from transition paths in the neo-classical growth model. The elasticity of substitution is identified from the cross-country correlation between trends in the labor share and (a proxy for) the rental rate of capital. Trends in labor's share and the rental rate are weakly correlated across countries, and inversely related in most samples. Previous cross-country estimates of this elasticity were substantially greater than one, which we show was partly due to omitted variable bias: earlier studies used investment prices alone to proxy for the rental rate, whereas the growth model relates rental rates to investment prices and consumption growth. |
| Keywords: | Firm dynamics; International topics; Labour markets |
| JEL: | E25 E22 J3 E13 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:19-3&r=all |
| By: | Laséen, Stefan; Lindé, Jesper; Ratto, Marco |
| Abstract: | In this paper, we study identification and misspecification problems in standard closed and open-economy empirical New-Keynesian DSGE models used in monetary policy analysis. We find that problems with model misspecification still appear to be a first-order issue in monetary DSGE models, and argue that it is problems with model misspecification that may benefit the most from moving from a classical to a Bayesian framework. We also argue that lack of identification should neither be ignored nor be assumed to affect all DSGE models. Fortunately, identification problems can be readily assessed on a case-by-case basis, by applying recently developed pre-tests of identification. |
| Keywords: | Bayesian estimation; Closed economy; DSGE model; Maximum Likelihood Estimation; Monte-Carlo methods; Open economy |
| JEL: | C13 C51 E30 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13492&r=all |
| By: | S Devrim Yilmaz (AFD - Agence française de développement, CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique); Engelbert Stockhammer (Kingston University [London]) |
| Abstract: | While there exists a substantial literature on different business cycle mechanisms, there is little literature on economies with more than one business cycle mechanism operating and the relation of stability of these subsystems with the stability of the aggregate system. We construct a model where a multiplier-accelerator subsystem in output-investment space (a real cycle) and a Minskyian subsystem in investment-debt space (a financial cycle) can generate stable/unstable cycles in 2D in isolation. We then derive a theorem showing that if two independent cycle mechanisms that generate stable closed orbits in 2D share a self-destabilizing common variable and the true representation of the system is a fully-coupled 3D system where a weighted average of the common variable is in effect, then the 3D system will generate locally stable closed orbits in 3D if and only if the subsystems have the same frequencies and/or the self-destabilizing effects of the common variable evaluated at the fixed point are equal in both subsystems. Our results indicate that in the presence of multiple cycle mechanisms which share common variables in an economy, the stability of the aggregate economy crucially depends on the frequencies of these sub-cycle mechanisms. Abstract While there exists a substantial literature on di¤erent business cycle mechanisms, there is little literature on economies with more than one business cycle mechanism operating and the relation of stability of these subsystems with the stability of the aggregate system. We construct a model where a multiplier-accelerator subsystem in output-investment space (a real cycle) and a Minskyian subsystem in investment-debt space (a …nancial cycle) can generate stable/unstable cycles in 2D in isolation. We then derive a theorem showing that if two independent cycle mechanisms that generate stable closed orbits in 2D share a self-destabilizing common variable and the true representation of the system is a fully-coupled 3D system where a weighted average of the common variable is in e¤ect, then the 3D system will generate locally stable closed orbits in 3D if and only if the subsystems have the same frequencies and/or the self-destabilizing e¤ects of the common variable evaluated at the …xed point are equal in both subsystems. Our results indicate that in the presence of multiple cycle mechanisms which share common variables in an economy, the stability of the aggregate economy crucially depends on the frequencies of these sub-cycle mechanisms. |
| Keywords: | Business cycles,Minsky models,Multiplier-accelerator |
| Date: | 2019–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cepnwp:hal-02012724&r=all |
| By: | Bolt, Wilko; Mavromatis, Kostas; van Wijnbergen, Sweder |
| Abstract: | We study the global macroeconomic effects of tariffs using a multiregional, general equilibrium model, EAGLE, that we extend by introducing US tariffs against Chinese imports into the US, and subsequently Chinese tariffs against US imports into China, consistent with recent trade policies by the US and the Chinese governments. We abstract from tariffs on goods exported from the euro area, focusing on a US-China trade war. A unilateral tariff from the US against China dampens US exports in line with the Lerner Symmetry theorem but global output contracts. Global output contracts even further after China retaliates. The euro area benefits from this trade war. These European trade diversion benefits are caused by cheaper imports from China and improved competitiveness in the US. As price stickiness in the export sector in each region increases, the negative effects of tariffs in the US and China are mitigated, but the positive effects in the euro area are then also dampened. |
| Keywords: | Exchange Rates; Local Currency Pricing; trade diversion; trade policy |
| JEL: | E32 F30 H22 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13495&r=all |
| By: | Bruno Ducoudré (Observatoire français des conjonctures économiques); Mathieu Plane (Observatoire français des conjonctures économiques); Xavier Ragot (Observatoire français des conjonctures économiques); Raul Sampognaro (Observatoire français des conjonctures économiques); Xavier Timbeau (Observatoire français des conjonctures économiques) |
| Abstract: | In this first part, starting from the fiscal rule contained in the report “Reconciling risk sharing with market discipline: A constructive approach to euro area reform” published in January 2018 by 14 French and German economists at the Centre for Economic Policy Research, we have simulated for France between 1997 and 2017 the fiscal policy that would have resulted from the proposed rule as well as the public finances trajectory. The report by the 14 economists indeed offers a public expenditure rule with a public debt target. The basic principle is simple: nominal public expenditures should not grow, in the long run, faster than the nominal GDP (which is the sum of the potential real GDP and expected inflation) and they should grow slower for countries that need to reduce their debt, roughly speaking countries with a debt higher than 60% of the GDP. The speed of debt reduction would depend on its distance to 60% (the further away, the faster the speed of adjustment). Public expenditures are net of interest payments, of unemployment spending (except when these are due to discretionary changes) and corrected by discretionary revenue measures (changes in tax rates and tax bases). |
| Keywords: | Fiscal policy; Market discipline; Public expenditures |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/7vo14j16vi87brn5uau34enb4i&r=all |
| By: | Francesco Saraceno (Observatoire français des conjonctures économiques) |
| Abstract: | The New Consensus that has dominated macroeconomics since the 1980s was based on a fundamentally neoclassical structure: efficient markets that on their own converged on a natural equilibrium with a very limited role for macroeconomic (mostly monetary) policy to smooth fluctuations. The crisis shattered this consensus and saw the return of monetary and fiscal activism, at least in academic debate. The profession is reconsidering the pillars of the Consensus, from the size of the multipliers to the implementation of reform, including the links between business cycles and trends. It is still too soon to know what macroeconomics will look like tomorrow, but hopefully it will be more eclectic and open. |
| Keywords: | Economic crisis; Budget policy; Reform; New consensus |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/6qk99khogd86non732alvigmuq&r=all |
| By: | Krebs, Tom (University of Mannheim); Scheffel, Martin (University of Cologne) |
| Abstract: | This paper analyzes the optimal response of the social insurance system to a rise in labor market risk. To this end, we develop a tractable macroeconomic model with risk-free physical capital, risky human capital (labor market risk) and unobservable effort choice affecting the distribution of human capital shocks (moral hazard). We show that constrained optimal allocations are simple in the sense that they can be found by solving a static social planner problem. We further show that constrained optimal allocations are the equilibrium allocations of a market economy in which the government uses taxes and transfers that are linear in household wealth/income. We use the tractability result to show that an increase in labor market (human capital) risk increases social welfare if the government adjusts the tax-and-transfer system optimally. Finally, we provide a quantitative analysis of the secular rise in job displacement risk in the US and find that the welfare cost of not adjusting the social insurance system optimally can be substantial. |
| Keywords: | labor market risk, social insurance, moral hazard |
| JEL: | E21 H21 J24 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp12128&r=all |
| By: | Hagedorn, Marcus; Manovskii, Iourii; Mitman, Kurt |
| Abstract: | We measure the size of the fiscal multiplier using a heterogeneous-agent model with incomplete markets, capital and rigid prices and wages. The environment encompasses the essential elements necessary for a quantitative analysis of fiscal policy. First, output is partially demand-determined due to pricing frictions in product and labor markets, so that a fiscal stimulus increases aggregate demand. Second, incomplete markets deliver a realistic distribution of dynamic consumption and investment responses to stimulus policies across the population. These elements give rise to the standard textbook Keynesian-cross logic which, and unlike conventional wisdom would suggest, is significantly reinforced in our dynamic forward looking model. We find that market incompleteness is key to determining the size of the fiscal multiplier, which is uniquely determined in our model for any combination of fiscal and monetary policies of interest. The multiplier is 1.34 if deficit-financed and 0.61 if contemporaneously tax-financed for a pegged nominal interest rate, with similar values in a liquidity trap. If monetary policy follows a Taylor rule, the numbers drop to 0.66 and 0.54, respectively. We elucidate the importance of market incompleteness for our results and contrast them to models featuring complete markets or hand-to-mouth consumers. |
| Keywords: | Fiscal Multiplier; incomplete markets; liquidity trap; sticky prices |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13529&r=all |
| By: | Bruno Ducoudré (Observatoire français des conjonctures économiques); Mathieu Plane (Observatoire français des conjonctures économiques); Xavier Ragot (Observatoire français des conjonctures économiques); Raul Sampognaro (Observatoire français des conjonctures économiques); Francesco Saraceno (Observatoire français des conjonctures économiques); Xavier Timbeau (Observatoire français des conjonctures économiques) |
| Abstract: | Les règles budgétaires européennes fixent un certain nombre de contraintes sur les finances publiques des États membres. Ceux-ci doivent respecter un plafond de déficit et de dette et s’engager sur un objectif de solde structurel à moyen terme. Ils doivent aussi respecter une variation du solde structurel et limiter la progression des dépenses publiques. En parallèle, à l’ajout de nouvelles contraintes, les dernières réformes de la gouvernance ont introduit des flexibilités afin de mieux adapter la réponse aux chocs macroéconomiques. Le cadre est ainsi devenu plus complexe mais il n’a pas permis d’éviter la crise des dettes souveraines dans la zone euro. De nombreuses propositions de réforme des règles sont actuellement en débat. Le FMI a proposé une philosophie de réforme pour un meilleur équilibre entre flexibilité, simplicité et contrainte. Cette philosophie a été introduite dans le cadre de la zone euro par quatorze économistes franco- allemands. Ils proposent de rebâtir les règles budgétaires autour d’une règle de dépenses publiques avec un mécanisme correcteur de la dette. Nous analysons les propriétés macroéconomiques de cette proposition. Selon les simulations réalisées à partir du modèle iAGS, la règle de dépense est inapplicable à des pays ayant un niveau de dette trop éloigné de 60% mais qui présentent des soldes structurels positifs, tels l’Italie ou le Portugal. Pour ces pays la règle provoque des efforts irréalistes qui aboutiraient à une très forte décroissance de la dette, l’amenant en terrain négatif assez rapidement. Ceci est accentué par le fait que la règle proposée est asymétrique. En revanche, en cas de choc de demande ou d’inflation non anticipé, la règle a les bonnes propriétés contra-cycliques. À nos yeux, une règle budgétaire, même réformée, ne suffira pas pour sortir de la synchronisation des politiques budgétaires et aller vers une véritable coordination. La tension existe entre une gouvernance par les règles et une gouvernance par la coordination. L’analyse des règles actuelles et de la proposition des quatorze économistes franco-allemands nous conduit à plaider pour la seconde option. L’hétérogénéité des pays européens rend impossible l’imposition à tous d’une règle simple. Il faut dès lors augmenter l’intensité de l’analyse économique portant sur la situation de chaque pays pour donner les moyens à une institution de prendre des décisions informées et de fournir des recommandations sur moyenne période. La contrepartie de cette agilité est un contrôle plus important de la soutenabilité des finances publiques. De manière plus opérationnelle, les interactions au sein du Semestre européen pourraient jouer ce rôle-là. Cette instance pourrait devenir le moment où l’on définit et l’on met en place conjointement la stratégie de croissance de l’Union, et où l’on établit la contribution de chaque pays à l’objectif commun. |
| Keywords: | Fiscal Policy; Eurozone Governance |
| JEL: | E62 H6 H61 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/6otpmf8eu785j94dnkr72hdklk&r=all |
| By: | Mattia Guerini (Scuola Superiore Sant'Anna); Alessio Moneta; Mauro Napoletano (Observatoire français des conjonctures économiques); Andrea Roventini (Observatoire français des conjonctures économiques) |
| Abstract: | In this paper, we investigate the causal effects of public and private debts on US output dynamics. We estimate a battery of Cointegrated Structural Vector Autoregressive models, and we identify structural shocks by employing Independent Component Analysis, a data-driven technique which avoids ad-hoc identification choices. The econometric results suggest that the impact of debt on economic activity is Janus-faced. Public debt shocks have positive and persistent influence on economic activity. In contrast, rising private debt has a milder positive impact on gross domestic product, but it fades out over time. The analysis of the possible transmission mechanisms reveals that public debt crowds in private consumption and investment. In contrast, mortgage debt fuels consumption and output in the short-run, but shrinks them in the medium-run. |
| Keywords: | Public and private debt; Business cycle fluctuations; Independant Component analysis; SVAR Identification |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/574jpbbn0f8f5r56hqi6mjgm9d&r=all |
| By: | Diewert, Erwin |
| Abstract: | The paper takes a consumer demand perspective to the problem of adjusting product prices for quality change. The various approaches to the problem of quality adjustment can be seen as special cases of the general framework. The special cases include the use of inflation adjusted carry forward and carry backward prices, the use of hedonic regressions and the estimation of Hicksian reservation prices. |
| Keywords: | Quality adjustment, hedonic regressions, reservation prices, consumer theory, time product dummy regressions, scanner data |
| JEL: | C43 C81 E31 |
| Date: | 2019–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:ubc:pmicro:erwin_diewert-2019-2&r=all |
| By: | Ryan, Ellen; Whelan, Karl |
| Abstract: | We use a bank-level data set to examine the behaviour of central bank reserves in the euro area banking system over the course of the ECB QE programme. Previous research on QE has generally paid little attention to the role of reserve dynamics within the banking system and some have assumed that the system passively absorbs additional reserves generated by asset purchases. However, with a negative deposit rate in place throughout the sample we study, euro area banks have had a disincentive to hold excess reserves and thus could wish to treat them as a "hot potato" that is preferably passed on to other banks. We find evidence for this hot potato effect, reporting substantial month-to-month churn in bank reserves as well as evidence that banks are responding to high reserve balances by pushing them off their balance sheets. Unlike in the traditional money multiplier model, where excess reserves are used in loan creation, banks appear to be primarily managing reserves through debt security purchases. As such, this hot potato effect seems likely to have had an effect on European bond yields that is distinct from the portfolio rebalancing effect emphasised in the QE literature thus far. |
| Keywords: | central banks; Quantitative easing; Reserves |
| JEL: | E4 E5 G21 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13499&r=all |
| By: | Zsofia Barany (Département d'économie); Nicolas Coeurdacier (Département d'économie); Stéphane Guibaud (Département d'économie) |
| Abstract: | We investigate the importance of worldwide demographic evolutions in shaping capital flows across countries and over time. Our lifecycle model incorporates cross-country differences in fertility and longevity as well as differences in countries’ ability to borrow inter-temporally and across generations through social security. In this environment, global aging triggers uphill capital flows from emerging to advanced economies, while country-specific demographic evolutions reallocate capital towards countries aging more slowly. Our quantitative multi-country overlapping generations model explains a large fraction of long-term capital flows across advanced and emerging countries. |
| Keywords: | Aging; Household Saving; International Capital Flows |
| JEL: | E21 F21 J11 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/1evugr7cvq8naonad7623t1rbv&r=all |
| By: | Bradbury, Katharine L. (Federal Reserve Bank of Boston) |
| Abstract: | Family economic mobility has been a policy concern for decades, with interest heating up further since the 1990s. Using data that tracks individual families’ incomes during overlapping 10-year periods from 1978 through 2014, this paper investigates the relationships of factors — family characteristics and macro influences — to intragenerational mobility and whether the importance of those factors has changed over time. Family characteristics include both levels of work behavior and family structure and within-period changes in those factors, as well as time-invariant characteristics of the family head, such as race. Macro factors include indicators of GDP growth and inflation during each 10-year period. The positions families occupy in the income distribution and the degree to which they are stuck or able to move up (or slide down) over time are critical determinants of their current well-being and their children’s prospects. |
| Keywords: | intragenerational mobility; economic inequality; family income distribution; macroeconomic influences; family structure |
| JEL: | D31 E24 I32 J62 |
| Date: | 2018–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:19-1&r=all |
| By: | Bruno Ducoudré (Observatoire français des conjonctures économiques); Xavier Timbeau (Observatoire français des conjonctures économiques); Sébastien Villemot (Ecole d'Économie de Paris - Paris School of Economics) |
| Abstract: | Using real equilibrium exchange rate modelling, we quantify adjustments within the euro area compatible with a current account equilibrium and a stabilisation of the net external positions of t he euro area countries. Our estimates indicate that the imbalances have shrunk since 2008, but substantial misalignments remain, and the average (absolute) mismatch relative to the euro price level amounts to 10% in 2017. The imbalances now weigh on the external equilibrium of the euro area and are increasing the risk of a medium -term appreciation in the euro. These results are robust to hypotheses on the horizon of adjustment, potential growth, output gaps and real interest rates. |
| Keywords: | Equilibrium exchange rate; Trade balance; Price competitiveness |
| JEL: | E31 F41 |
| Date: | 2018–12 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/254n423ih78cnainj42ued3i28&r=all |
| By: | Johannes Boehm (Département d'économie); Ezra Oberfield (Princeton University) |
| Abstract: | The strength of contract enforcement determines how firms source inputs and organize production. Using microdata on Indian manufacturing plants, we show that production and sourcing decisions appear systematically distorted in states with weaker enforcement. Specifically, we document that in industries that tend to rely more heavily on relationship-specific intermediate inputs, plants in states with more congested courts shift their expenditures away from intermediate inputs and appear to be more vertically integrated. To quantify the impact of these distortions on aggregate productivity, we construct a model in which plants have several ways of producing, each with different bundles of inputs. Weak enforcement exacerbates a holdup problem that arises when using inputs that require customization, distorting both the intensive and extensive margins of input use. The equilibrium organization of production and the network structure of input-output linkages arise endogenously from the producers’ simultaneous cost minimization decisions. We identify the structural parameters that govern enforcement frictions from cross-state variation in the first moments of producers’ cost shares. A set of counterfactuals show that enforcement frictions lower aggregate productivity to an extent that is relevant on the macro scale. |
| Keywords: | Production networks; Intermediate inputs; Misallocation; Productivity; Contract enforcement; Value chains |
| JEL: | E23 O11 F12 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/3lt9cev6r09aqpj1a1248i83gg&r=all |
| By: | Prettner, Klaus; Strulik, Holger |
| Abstract: | We analyze the effects of R&D-driven automation on economic growth, education, and inequality when high-skilled workers are complements to machines and low-skilled workers are substitutes for machines. The model predicts that innovation-driven growth leads to an increasing population share of college graduates, increasing income and wealth inequality, and a declining labor share. We use the model to analyze the effects of redistribution. We show that it is difficult to improve income of low-skilled individuals as long as both technology and education are endogenous. This is true irrespective of whether redistribution is financed by progressive wage taxation or by a robot tax. Only when higher education is stationary, redistribution unambiguously benefits the poor. We show that education subsidies affect the economy differently depending on their mode of funding and that they may actually reduce education. Finally, we extend the model by fair wage concerns and show how automation could induce involuntary low-skilled unemployment. |
| Keywords: | Automation,Innovation-Driven Growth,Inequality,Wealth Concentration,Unemployment,Policy Responses |
| JEL: | E23 E25 O31 O33 O40 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:320&r=all |
| By: | Xueqin Zhu; Sjak Smulders; Aart de Zeeuw |
| Abstract: | Discounting has to take account of ecosystem services in consumption and production. Previous literature focuses on the first aspect and shows the importance of the relative price effect, for given growth rates of consumption and ecosystem services. This paper focuses on intermediate ecosystem services in production and shows that for limited substitutability and a low growth rate of these ecosystem services, the growth rate of consumption, and thus the discount rate, declines towards a low value. Using a Ramsey optimal-growth framework, the paper distinguishes three cases. If ecosystem services can be easily substituted, then the discount rate converges to the usual value in the long term. Secondly, if ecosystem services can be easily substituted in production but not in consumption, the relative price effect is important. Finally, and most interestingly, if ecosystem services cannot be easily substituted in production, the discount rate declines towards a low value and the relative price effect is less important. Another part of the previous literature has shown that a declining discount rate is the result of introducing several forms of uncertainty, but this paper reaches that conclusion from an endogenous effect on the growth rate of the economy. |
| Keywords: | discount rate, ecosystem services, consumption value, production value, growth rate, Ramsey optimal balanced growth |
| JEL: | C61 D90 E43 O44 Q57 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7514&r=all |
| By: | Dana Orfaig (Bank of Israel) |
| Abstract: | In recent years, the marked increase in home prices in Israel has prompted the need to understand the impact of monetary policy on home prices, including the mag- nitude and persistence of that impact. This paper finds that in response to a positive shock of 1 percentage point in the Bank of Israel's monetary interest rate, nominal home prices decline by 2.6 percent, and real home prices decline by 1.1 percent (and in a symmetrical manner to a negative shock). A broad international comparison indicates that the impact on home prices in Israel of a monetary shock is similar to the average impact worldwide. This paper adds to a wide global research base, and proposes-apparently for the first time in Israel-a structural VAR examination of the dynamic links between monetary policy and home prices. The VAR structure takes into account the main variables in the economy that affect, and are affected by, this link. The main conclusion is that monetary shocks, on their own, were not a dominant factor in explaining the changes in home prices in the research period-from the second quarter of 1995 through the first quarter of 2015. |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:boi:wpaper:2017.09&r=all |
| By: | Christophe Blot (Observatoire français des conjonctures économiques); Jérôme Creel (Observatoire français des conjonctures économiques); Paul Hubert (Observatoire français des conjonctures économiques); Fabien Labondance (Observatoire français des conjonctures économiques) |
| Abstract: | Cette contribution s’intéresse aux effets redistributifs des politiques monétaires non conventionnelles. Les canaux par lesquels la politique monétaire influence les inégalités sont présentés et cette relation est testée au niveau de la zone euro. Les résultats suggèrent que les politiques monétaires non conventionnelles ont pu exacerber les inégalités en favorisant les ménages déjà détenteurs d’un emploi ou possédant un patrimoine financier. |
| Keywords: | Politique monétaire; Redistribution; Inégalités |
| JEL: | D3 D63 E5 E25 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/4be9ocps918b1aqpqf2k0noh3n&r=all |
| By: | Noriyuki Yanagawa (University of Tokyo); Hiromi Yamaoka (Bank of Japan) |
| Abstract: | Under the developments of digital innovation, global expansion of cashless payments and the emergence of crypto-assets, some argue that central banks should issue digital currencies that can be used by ordinary people instead of paper-based banknotes. The debates on central bank digital currencies are now gathering great attention from worldwide. Although many of major central banks, including the Bank of Japan, do not have an immediate plan to issue digital currencies that can replace banknotes, some central banks are seriously considering whether they should issue digital currencies in the near future or have already issued them as pilot studies. The debates on central bank digital currencies cover broad issues, such as their possible impacts on payment efficiency, banks f fund intermediation, liquidity crises and the transmission mechanism of monetary policy. All of these issues have important implications for the functions of money as well as its future. Digital innovation expands the possibility of money and enables new types of money with a variety of functions to emerge. These functions may include not only traditional payments but also processing various information and data attached to payments as well as executing transactions. In order to consider the pros and cons of central bank digital currencies as well as the future of money, it is needed to assess their possible impacts not only on payment efficiency but also on financial structure and the overall economy. It is also important to examine their impacts on effective utilization of data and the dynamics of gnetworks externality h, which is one of major characteristics of payment infrastructure. |
| Keywords: | central bank digital currency; innovation; payment; negative interest rate |
| Date: | 2019–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp19e02&r=all |
| By: | Karl Aiginger (Department of Economics, Vienna University of Economics and Business) |
| Abstract: | In the years following the financial crisis, Greece experienced a severe loss in real per capita income and accumulated a public debt much higher than GDP and that of any other EU country. The article briefly analyses the causes of this development, including the policy failures of Greece and the EU. It develops a game-changing strategy, which could return the country to a growth path. This starts with the vision that Greece can make use of its unique location between Europe, Asia and Africa to build a bridge connecting these regions with fascinating and productive complementarities. Given this new strategy, including regional leadership in decarbonisation, youth reform boards, and the Greek diaspora as a manager of reforming and financing new activities, Europe should cut a substantial part of the debt. This would be in the interest of Greece, the EU and Europe´s neighbours. |
| Keywords: | European strategy, a vision for Greece in the globalized world, new actors for reforms |
| JEL: | A13 D22 E02 E61 F13 F42 L52 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp278&r=all |
| By: | Paul Hubert (Observatoire français des conjonctures économiques); Giovanni Ricco (Observatoire français des conjonctures économiques) |
| Abstract: | This article presents some recent theoretical and empirical contributions to the macroeconomic literature that challenge the perfect information hypothesis. By taking into account the information frictions encountered by economic agents, it is possible to explain some of the empirical regularities that are difficult to rationalise in the standard framework of full information rational expectations. As an example, we discuss how the sign, size and persistence of the estimated effects of monetary and fiscal policies can change when the informational frictions experienced by economic agents are taken into account. |
| Keywords: | Infomational frictions; Imperfect information; Economic policy |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/7rrg4irjh79549mkjh27en0pos&r=all |
| By: | Neil Bhutta; Jesse Bricker; Lisa J. Dettling; Jimmy Kelliher; Steven Laufer |
| Abstract: | We estimate a county-level model of household delinquency and use it to conduct "stress tests" of household debt. Applying house price and unemployment rate shocks from Comprehensive Capital Analysis Review (CCAR) stress tests, we find that forecasted delinquency rates for the recent stock of debt are moderately lower than for the stock of debt before the 2007-09 financial crisis, given the same set of shocks. This decline in expected delinquency rates under stress reflects an improvement in debt-to-income ratios and an increase in the share of debt held by borrowers with relatively high credit scores. Under an alternative scenario where the size of house price shocks depends on housing valuations, we forecast a much lower delinquency rate than occurred during the crisis, reflecting more reasonable housing valuations than pre-crisis. Stress tests using other scenarios for the path of house prices and unemployment also support the conclusion that household debt curren tly poses a lower risk to financial stability than before the financial crisis. |
| Keywords: | Delinquency ; Household debt ; Loan default ; Stress testing |
| JEL: | D14 G01 E37 |
| Date: | 2019–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2019-08&r=all |
| By: | Martin, Alberto; Moral-Benito, Enrique; Schmitz, Tom |
| Abstract: | How do housing bubbles affect other economic sectors? We show that in the presence of collateral constraints, a bubble initially raises housing credit demand and crowds out credit to non-housing firms. If the bubble lasts, however, housing credit repayments raise banks’ net worth and expand credit supply, so that crowding-out eventually gives way to crowding-in. This is consistent with evidence from the recent Spanish housing bubble. Initially, credit growth of non-housing firms was lower at banks with higher bubble exposure, and firms relying on these banks exhibited lower credit and output growth. During the bubble’s last years, these effects reversed. JEL Classification: E32, E44, G21 |
| Keywords: | credit, financial frictions, financial transmission, housing bubble, investment, Spain |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192245&r=all |
| By: | Corsetti, Giancarlo; Eichengreen, Barry; Hale, Galina B; Tallmann, Eric |
| Abstract: | Why was recovery from the euro area crisis delayed for a decade? The explanation lies in the absence of credible and timely policies to backstop financial intermediaries and sovereign debt markets. In this paper we add light and color to this analysis, contrasting recent experience with the 1992-3 crisis in the European Monetary System, when national central banks and treasuries more successfully provided this backstop. In the more recent episode, the incomplete development of the euro area constrained the ability of the ECB and other European institutions to do likewise. |
| Keywords: | Backstop; Currency devaluation; financial crises; Sovereign and banking risk |
| JEL: | E63 G01 N14 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13522&r=all |
| By: | Bethencourt, Carlos; Stadtmann, Georg |
| Abstract: | We examine the natural rate of unemployment estimates of two international organizations (OECD and European Commission) and various release dates. Since estimates differ to a large extent, empirical research results which use natural rate estimates will also vary depending on the data source chosen. We highlight the extend of these effects by focusing on Spain, but also present evidence for several other EU-countries. |
| Keywords: | natural rate,real time data,monetary policy,fiscal policy |
| JEL: | E52 J60 A23 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:euvwdp:409&r=all |
| By: | Zaman, Gheorghe; Georgescu, George |
| Abstract: | The paper focuses on the evolution of the capital in Romania, in three extremely different periods during the last century, under the changes of internal / international context and political regimes, with special emphasis on the relationship with the country economic development. In the years 1918-1945, the share of foreign capital in the capital of joint-stock companies was higher compared to domestic capital, which is explained by the interest of foreign investors to seek relatively cheap resources and production factors in Romania. A certain role of foreign investments in this period to the development of several industrial sectors is broadly recognized in the special literature. In the socialist period, 1948-1989, characterized by the insignificant size of foreign capital in Romania (excepting some few failed joint venture companies), the accelerated accumulation of capital and the fast increase of fixed assets led to an excessive development of production overcapacities, with relatively low efficiency, energy-intensive and polluting, what created severe economic and financial imbalances, ended with the collapse of the system. During the transition period to the market economy, 1990-2018, marked, in the first decade, by a certain degradation of the domestic capital due to the bankruptcy and/or unsuccesful privatization of state-owned companies, after the year 2000, at the same time with the gradual integration in the euro-atlantic structures, the foreign investors have increased significantly their presence in Romania, entering in a competitive relationship with the domestic capital and production. |
| Keywords: | foreign and domestic capital; financial crisis; capital accumulation; privatization; economic integration; NIIP; FDI |
| JEL: | E22 N14 N24 O16 O52 P33 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92316&r=all |
| By: | Courtney Coile; Mark Duggan |
| Abstract: | The economic progress of U.S. men has stagnated in recent decades, with declining labor force participation and weak growth in real earnings, particularly for less educated and non-white men. In this paper, we illuminate the broader context in which prime-age men are experiencing economic stagnation. We explore changes for prime-age men over time in education, mortality, morbidity, disability program receipt, family structure, and incarceration rates, indicators that may be affected by men’s sluggish economic progress or play a role in explaining it, or both. While establishing causality for such a wide range of health and other outcomes is inherently difficult, we discuss clues provided by recent research. |
| JEL: | I10 I20 J12 J22 K42 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25569&r=all |
| By: | Saint-Paul, Gilles |
| Abstract: | Why would people support policies that are macroeconomically unsound, in that they are more likely to lead to such events as sovereign crises, balance of payments crises, and the like? This may arise if decisive voters are likely to bear a lower fraction of the costs of the crisis, while benefitting from the short-run gains associated with those policies, such as greater public expenditure or lower taxes. I first discuss an illustrative model based on Saint-Paul et al. (2017), based on the assumption that in a crisis, not everybody can access his or her entitlement to publicly provided goods, a feature labelled "favoritism". If the decisive voter is relatively favored in this rationing process, then people are more likely to finance public expenditure by debt, the greater the degree of favoritism. Furthermore, favoritism and the likelihood of a crisis raises the level of public spending. Next, I consider the choice between electing a "populist" who reneges on anonymity when allocating the public good, even in normal times, and a "technocrat" who sticks to anonymity, and does all it takes to balance the budget. I show that the support for the populist is greater, (i) the greater the likelihood of default, (ii) the more depressed the macroeconomic environment, (iii) the greater the inherited level of public debt and (iv) the lower the state's fiscal capacity. I then argue that the model helps understanding some episodes in French pension reform. Some occupational groups supported unsustainable reductions in the retirement age because they expected that other workers would bear a higher proportion of the burden of future adjustment. Finally, using a panel of countries, I provide evidence in favor of some of the predictions of the model. As predicted, favoritism raises public debt, budget deficits, and public spending. It also raises the likelihood of a fiscal crisis through its effect on public debt. Furthermore, "populists" are more likely to conquer power, the higher the degree of debt and budget deficits, and the higher the level of government spending--the latter finding being consistent with the model's prediction on the effect of fiscal capacity. |
| Keywords: | Entitlements; favoritism; Fiscal Crises; inequality; political economy; populism; public debt; state capacity |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13434&r=all |
| By: | Oseni, Isiaq; Akpa, Emeka; Aberu, Felix |
| Abstract: | The paper investigated the impact of stock market on economic growth in Nigeria from 1981 to 2016 using a three-equation simultaneous-equations model in a Three Stage Least Square (3SLS) estimation technique. The paper found that stock market positively spurs economic growth in Nigeria indicating that increase in stock market participations would enhance growth in Nigerian economy. The paper therefore concluded that there is positive and significant effect between stock market and economic growth. The paper recommended that policy makers should encourage more participation in the stock market by making it easier for business owners and foreign investors have easy access business registration and float on the stock market. |
| Keywords: | Stock Market, Economic Growth, 3SLS, Emerging Economies, Fiscal Policy |
| JEL: | C3 C32 E22 |
| Date: | 2018–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92285&r=all |
| By: | Alex Ilek (Bank of Israel); Irit Rozenshtrom (Bank of Israel) |
| Abstract: | We study the term premium on nominal and real government bonds in a small open economy within a micro-founded DSGE model with Epstein- Zin preferences. We solve the model using a third-order approximation to allow for time-varying risk premia. We thus extend previous work on closed economies to the case of a small open economy. We find that tech- nological spillovers from the global economy to the small open economy are essential for the ability of the model to produce concurrently a sub- stantial positive nominal term premium, realistic variability of the main macroeconomic variables, and high correlations between the global and domestic economies as evident in the data. We use the model to study the effect of the openness of the economy on bond risk premia. We identify two opposing effects of the openness of the economy on the nominal term premium. The better ability of the open economy to accommodate domes- tic shocks works to decrease the term premium in the open economy. By contrast, in the presence of technological spillovers from the global econ- omy to the small open economy, the foreign technological shock generates a higher term premium in the open economy compared to a closed one. Quantitatively, in our model these effects roughly offset each other so that the term premium in the open economy is similar to the premium in an otherwise similar economy that is closed to trade in goods and financial assets. |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:boi:wpaper:2017.06&r=all |
| By: | Ekaterina V. Peneva; Nadia Sadee |
| Abstract: | In this Note, we take another look at residual seasonality in several measures of core inflation. |
| Date: | 2019–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2019-02-12-2&r=all |
| By: | Benigno, Pierpaolo |
| Abstract: | Can currency competition destabilize central banks' control of interest rates and prices? Yes, it can. In a two-currency world, the growth rate of cryptocurrency sets a lower bound on the nominal interest rate and the attainable inflation rate. In a world of multiple competing currencies issued by profit-maximizing agents, the central bank completely loses control of the nominal interest rate and the inflation rate, which are both determined by structural factors, and thus not subject to manipulation, a result welcomed by the proponents of currency competition. The article also proposes some fixes for the classical problem of indeterminacy of exchange rates. |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13517&r=all |
| By: | Robert, Sonora |
| Abstract: | This paper investigates the relationship between energy consumption and income inequality in an unbalanced panel of 147 countries over the period 1990 - 2014. Using a variety of panel and dynamic panel methods and controlling for other determinants of inequality, such as education, health, investment, etc., I find a large and strong negative relationship between access to energy and income inequality. Moreover, I demonstrate that greater access reduces the share of income enjoyed by the top 20% and increases the share for the bottom 20%. Results are less robust when the sample is divided into regions and economic 'blocs', but the overall results are unchanged. |
| Keywords: | Income Inequality, Growth, Energy, Dynamic Panel |
| JEL: | E02 O43 O50 Q43 |
| Date: | 2018–10–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92171&r=all |
| By: | Canova, Fabio; Matthes, Christian |
| Abstract: | We consider a set of potentially misspecified structural models, geometrically combine their likelihood functions, and estimate the parameters using composite methods. Composite estimators may be preferable to likelihood-based estimators in the mean squared error. Composite models may be superior to individual models in the Kullback-Leibler sense. We describe Bayesian quasi-posterior computations and compare the approach to Bayesian model averaging, finite mixture methods, and robustness procedures. We robustify inference using the composite posterior distribution of the parameters and the pool of models. We provide estimates of the marginal propensity to consume and evaluate the role of technology shocks for output fluctuations. |
| Keywords: | Bayesian model averaging; composite likelihood; finite mixture; model misspecification |
| JEL: | C13 C51 E17 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13511&r=all |
| By: | Weinand, Sebastian; von Auer, Ludwig |
| Abstract: | Over the last three decades the supply of economic statistics has vastly improved. Unfortunately, statistics on regional price levels (sub-national purchasing power parities) have been exempt from this positive trend, even though they are indispensable for meaningful spatial comparisons of regional output, income, wages, productivity, standards of living, and poverty. To improve the situation, our paper demonstrates that a highly disaggregated and reliable regional price index can be compiled from data that already exist. We use the micro price data that have been collected for Germany's Consumer Price Index in May 2016. For the computation we introduce a multi-stage version of the Country-Product-Dummy method. The unique quality of our price data set allows us to depart from previous spatial price comparisons and to compare only exactly identical products. We find that the price levels of the 402 counties and cities of Germany are largely driven by the cost of housing and to a much lesser degree by the prices of goods and services. The overall price level in the most expensive region, Munich, is about 27 percent higher than in the cheapest region. Our results also reveal strong spatial autocorrelation. |
| Keywords: | spatial price comparison,regional price index,PPP,CPD-method,hedonic regression,consumer price data |
| JEL: | C21 C43 E31 O18 R10 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:042019&r=all |
| By: | Tuuli, Saara |
| Abstract: | This paper investigates the impact of the model-based approach to bank capital regulation (i.e. the Internal Ratings Based Approach; IRBA) on firms' access to finance. A difference-in-differences methodology is used given that the IRBA, introduced as part of Basel II, was adopted by different banks in different times. The results suggest that firms indirectly affected by the new regulation via their main bank adopting the IRBA faced a 6-7 percentage point higher probability of facing a deterioration in their access to finance. When the sample is adjusted for the demand for credit, this estimate increases to 12-13 percentage points. The impact is found to come via increases in the cost of credit and to a smaller extent, reductions in the volume or size of loans. Around three-quarters of the effect is attributed to the sensitivity of the IRBA capital requirements to economic conditions, with adopting banks also found to specialize in low-risk lending. |
| JEL: | G21 G28 E51 |
| Date: | 2019–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2019_004&r=all |
| By: | Christophe Blot (Observatoire français des conjonctures économiques); Paul Hubert (Observatoire français des conjonctures économiques) |
| Abstract: | Central banks have intensified their communication strategy since the mid 1990’s and it has become an important instrument of central banks’ policymaking toolkit. A large empirical evidence suggests that central bank communication has effectively enhanced the transmission of monetary policy before and during the financial crisis. Nevertheless, the use of communication as a policy instrument is fragile since it depends on economic agents’ perceptions and beliefs. It is crucial that central bank communication be consistent with policy decisions. |
| Keywords: | ECB; Communication; Monetary policy |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/52p48pif5099i9i8uilpqhgnt4&r=all |
| By: | Quitzau, Jörn; Prömel, Christopher; Vöpel, Henning; Cotterell, Maike |
| Abstract: | [Introduction] Ten years ago, the global economic and financial crisis was at its peak. When ailing investment bank Lehman Brothers filed for insolvency on 15 September 2008, the smouldering crisis on the financial markets became a full-scale firestorm. While falling real estate prices had already been causing problems for banks and other financial institutions, it was the Lehman collapse that fanned the flames of the disaster. The consequences were devastating. In several industrial countries, bank after bank was plunged into financial turmoil, and several had to be propped up by the state. The global economy was upended, with many companies and consumers cutting back on spending because of concerns about the consequences of the crisis on the financial markets. Growth in Germany collapsed by roughly 5%, something that had never before been seen in the post-war era. Governments around the world drew up extensive economic stimulus packages in a bid to counter the collapse of private sector spending. Central banks responded with drastic interest cuts, thus laying the foundations for an ultra-expansive monetary policy that would persist for several years. With the economic stimulus measures and the direct aid for troubled financial institutions (including nationalisation), national governments took on a heavy financial burden. Parts of what had been private debt were converted into public debt. The resulting dramatic rise in sovereign debt, which in some cases had already been running at a high level, caused many market participants and the general public to fear huge inflation, state bankruptcy and even currency reforms. A large number of observers described the situation as hopeless. It was this widespread concern that prompted us, back in 2009, to take an in-depth look at the topic of sovereign debt as part of our Strategy 2030 series. The tenor of our analysis at the time was that while the situation in the financial system and with public finances was very serious, there were ways out of the crisis without having to resort to the state bankruptcies, currency reforms or hyperinflation that people feared. Ten years on, we now know that these doomsday prophecies did not come true. With the exception of Greece, there were no state bankruptcies. Similarly, there was no need for currency reforms. Even the euro, which suffered a severe loss of trust in the interim, did not implode. And there has still not been any significant consumer price inflation in the major industrial countries. In fact, in recent years central banks have been more concerned with preventing deflation. So is this positive outcome merely a »snapshot« of the current moment in time, or is there good reason to suggest that we have weathered the crisis? Is there a risk that these painstakingly achieved successes in stabilising state finances could be lost again the next time the economy takes a nose-dive? What happens if interest rates one day start to spike? And is there a threat of a new debt crisis if highly indebted countries such as Italy destroy the tediously crafted reform successes with another departure in economic policy? These are the questions we want to examine in this study. We will shed some light on the status quo and outline the areas that could pose new risks with the ability to reignite the debt crisis. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:hwwist:26e&r=all |
| By: | Stephan B. Bruns; Alessio Moneta; David I. Stern |
| Abstract: | The size of the economy-wide rebound effect is crucial for estimating the contribution that energy efficiency improvements can make to reducing energy use and greenhouse gas emissions. We provide the first empirical general equilibrium estimate of the economy-wide rebound effect. We use a structural vector autoregressive (SVAR) model that is estimated using search methods developed in machine learning. We apply the SVAR to U.S. monthly and quarterly data, finding that after four years rebound is around 100%. This implies that policies to encourage cost-reducing energy efficiency innovation are not likely to significantly reduce energy use and greenhouse gas emissions. |
| JEL: | C32 Q43 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2019-21&r=all |
| By: | Ashworth, Jonathan; Goodhart, Charles A |
| Abstract: | The Canadian Government legalized Cannabis usage on October 17th, 2018. During the same month, primarily in the week before and after such legalization, the amount of cash in circulation fell quite materially, in contrast to the rises typically observed in previous years. A key driver is likely to have been Cannabis users switching from cash payments for illegal purchases to using standard recordable electronic payments for their purchases, which have now become legal. The legalization of Cannabis should ultimately reduce the size of the Underground economy by around 4 or 5 percent, with a much bigger decline likely in the black economy. |
| Keywords: | Black Economy; Canada; Cannabis; cash |
| JEL: | D12 E41 K40 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13448&r=all |
| By: | Antoine Monserand (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Situated at the interface between post-Keynesian and ecological economics, this article investigates the theoretical possibilities for a degrowth transition to take place while preserving macroeconomic stability. More precisely, the objective is to find whether in a neo-Kaleckian model of growth and distribution an equilibrium with a zero or even negative rate of accumulation can coexist with the Keynesian stability condition being verified. Our results are threefold. First, we confirm that adding the rate of depreciation to the canonical model allows for such an equilibrium to exist, but argue in favor of considering animal spirits rather than the depreciation factor as a potential policy variable for the management of the degrowth transition. Second, other elements such as overhead labour, a tax on capital, an autonomous component in consumption expenditures and a budget deficit can all give this result and provide more 'space' for the equilibrium with a negative rate of accumulation. Finally, we use the mechanism of the Sraffian supermultiplier to illustrate that combined political action and adoption of a more ecological mode of living can be the drivers of a stable degrowth transition. After the transition is completed, the stabilisation of aggregate consumption maintains the economy in a stationary state, at an ecologically sustainable level. |
| Keywords: | Neo-Kaleckian,Degrowth,Transition,Stability,Autonomous consumption,Super-multiplier |
| Date: | 2019–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cepnwp:hal-02012632&r=all |
| By: | Urban Sila; Valéry Dugain |
| Abstract: | This paper analyses income, wealth and earnings inequality in Australia, using the Household, Income and Labour Dynamics in Australia (HILDA) Survey as the primary source of data. Income inequality in Australia has risen in the last two decades, but most of the rise occurred prior to the global financial crisis. HILDA data nevertheless show evidence of slower income growth in the middle of the income distribution compared with the top and the bottom. While Australia has experienced a rising inequality in wages – mostly through rapid earnings increases among top earners - this has been offset by increased participation and longer hours worked at the bottom of the distribution. According to HILDA data, relative pay across different levels of education groups has not recorded large shifts over the last 15 years. At the same time, we find evidence for job polarisation; notably, the share of high skilled jobs versus middle skilled jobs has increased. With respect to concerns about the casualisation of the labour force and less stable nature of jobs amid technological change and globalisation, the incidence of casual employment – where workers receive no paid sick leave or holiday leave - in Australia has been reported to have risen since the 1980s, especially for females. According to HILDA data however, the incidence of casual employment has fallen since early 2000s. Furthermore, we find no evidence that contract duration has shortened over time. |
| Keywords: | Australia, earnings inequality, HILDA, household panel, income distribution, income mobility, inequality, job polarisation, wealth inequality |
| JEL: | D31 E24 J2 J3 |
| Date: | 2019–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1538-en&r=all |
| By: | Jean-Luc Gaffard (Observatoire français des conjonctures économiques) |
| Abstract: | This article aims to contrast modern macroeconomic analysis with a nonWalrasian or evolutionary macroeconomics. This debate, which returns to the forefront with each major economic crisis, concerns the nature of coordination problems and the means of resolving them. While modern macroeconomic models describe the inter-temporal optimization behaviour of consumers who are perfectly adapted to their environment and cleared markets, evolutionary macroeconomics focuses on market imbalances that require adaptive behaviours. This contrast affects monetary and fiscal policy as well as the nature of any structural reforms to be carried out. It also affects the type of modelling to be developed |
| Keywords: | Imperfect knowledge; Short term; Equilibrium; Flexibility; Long term; Structural reforms; Rigidity |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/1cgtnskg398lbrjva1dhgfkgv8&r=all |
| By: | Bentolila, Samuel; Dolado, Juan J.; Jimeno, Juan F |
| Abstract: | This paper provides an overview of recent research on dual labour markets. Theoretical and empirical contributions on the labour-market effects of dual employment protection legislation are revisited, as well as factors behind its resilience and policies geared towards correcting its negative economic and social consequences. The topics covered include the stepping-stone or dead-end nature of temporary contracts, their effects on employment, unemployment, churn, training, productivity growth, wages, and labour market inflows and outflows. The paper reviews both theoretical advances and relevant policy discussions on a very relevant topic in many European countries, in particular in several that had a very poor employment performance during the recent global economic and financial crisis. |
| JEL: | E24 J63 J65 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13475&r=all |
| By: | Alder, Simon; Boppart, Timo; Müller, Andreas |
| Abstract: | We study structural change in historical consumption expenditure of the United States, the United Kingdom, Canada and Australia over more than a century. To identify preference parameters from aggregate data, we characterize the most general class of preferences in a time-additive setting that admits aggregation of the intertemporal saving decision. We parametrize and estimate such intertemporally aggregable (IA) preferences and discuss their properties in a dynamic general equilibrium framework with sustained growth. Our preferences class is considerably more flexible than the Gorman form or PIGL/PIGLOG, giving rise to a good fit of the non-monotonic pattern of structural change. |
| Keywords: | aggregation; Multi-sector growth model; non-homothetic preferences; Non-monotonic Engel curves; Relative price effects; structural change |
| JEL: | E21 L16 O11 O14 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13469&r=all |